With the repudiation of the momentum trade, value stocks and exchange traded funds are attracting more attention.
“It is not surprising that sentiment is shifting away from some of the growth segments of the market,” writes Russ Koesterich, Managing Director, BlackRock Global Chief Investment Strategist. “Valuations for these industries are starting to appear stretched (particularly for biotech and social media companies), and investors are starting to seek better opportunities elsewhere—specifically in some of the more value-oriented areas.”
Specifically, Koesterich suggests U.S. mega-cap companies and non-internet technology industries.
Investors can find a number of mega-cap ETFs, along with funds that specifically target value stocks. 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.
Looking at valuations, IWX has a 14.4 price-to-earnings ratio, and MGV has a 14.1 P/E ratio, according to Morningstar data. In comparison, the S&P 500 Index shows a P/E of 16.6.
Additionally, the strategist points to international markets, like Europe and Japan, that can offer better value than U.S. stocks.