Moreover, the current underperformance in value stock ETFs may be affected by investment sentiment. Specifically, investors are typically more aggressive during periods of heightened volatility and would chase popular growth stocks. Since growth stocks show high multiples, investors may expect that the companies will sustain a high growth rate. In contrast, traders may feel that firms with low multiples would continue to experience tepid growth.
However, once markets are calmer, investors may become more rational and realize that value stocks are trading at much cheaper prices.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.