“Following a strong value rally, on average, the market underperforms its historical average for the next 10 months,” Parker said. “That is not to say that the market necessarily declines, but instead on average it rises less than normal for the next 10 months. After that, market performance tends to return to historical norms.”
Looking ahead, value could continue to outpace growth stocks for a while. [Value ETFs May be the New Black]
“Value tends to continue its advantage over growth following strong value rallies,” Parker added. “The value outperformance continues for 11 months following the value rally…Thus, the expectation that many investors we talked to last week have of a growth rebound following a run-up in value stocks is not borne out by history.”
Along with picking out value sectors, investors can track broad index ETFs that specifically target value picks. For instance, the iShares Russell Top 200 Value ETF (NYSEArca: IWX) tracks companies with relatively low price-to-book ratios and lower forecasted growth from the Russell Top 200 Index, which includes the largest capitalization sector of U.S. equities. Additionally, the Vanguard Mega Cap Value ETF (NYSEArca: MGV) follows the CRSP US Mega Cap Value Index, which also tracks mega-capitalization stocks with a value tilt. [Very Valuable Value ETFs]
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