Value stock exchange traded funds have outpaced funds focused on growth stocks this year and could continue to lead the markets.
The iShares Russell 1000 Value ETF (NYSEArca: IWD) increased 8.7% year-to-date, whereas the iShares Russell 1000 Growth ETF (NYSEArca: IWF) was up 7.1%. IWD shows a price-to-earnings ratio of 15.9, compared to the 20.2 P/E reading for IWF. [Vindicated Value ETFs]
Growth stocks experienced a sharp sell-off in March and April, With investors now targeting value picks, some strategists argue that the dramatic shift in sentiment and market leadership could last a year or more, reports Rob Curran for the Wall Street Journal.
Value stock ETFs attracted $3.1 billion in inflows over April, whereas growth ETFs saw $1.2 billion in redemptions. The differential was “the widest one-month gap on record,” according to BlackRock.
“Rotations this strong, while infrequent, are typically followed by periods where value outperforms,” Morgan Stanley chief U.S. equity strategist Adam Parker in a recent research note.
Parker argues that value stocks are more favorable in an optimistic economic environment. Specifically, he believes investors are looking at companies that can continue to growth in a slow-expansionary world.
“Growth and value leadership tends to be cyclical in nature,” David Koenig, a strategist with Russell Investments, said in the article. “Even though with the market weakness and volatility to date valuations have come in a bit, they still are a bit above their long-term averages, and that along with the leadership we’ve seen consistently so far in 2014 suggests that value could remain a leader.”
iShares Russell 1000 Value ETF
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.