Stock ETFs that focus on the value style have been outperforming for much of the year and continue to outpace the growth category after Donald Trump clutched the presidential elections.
For instance, among the best performing large-cap value ETFs over the past month, the Guggenheim S&P 500 Pure Value ETF (NYSEArca: RPV) rose 8.1%, First Trust Large Cap Value AlphaDEX Fund (NasdaqGM: FTA) gained 7.7% and PowerShares Russell Top 200 Pure Value Portfolio (NYSEArca: PXLV) increased 7.2%.
In comparison, the benchmark S&P 500 Index returned 2.9% over the past month while the growth category underperformed both the value and blended categories, with the S&P 500 Growth Index up 0.7%.
As with most ETF investments, investors should watch their underlying holdings, and the most recent outperformance in the value-oriented ETFs may be attributed to their sector weights.
Looking at the value ETF’s underlying holdings, investors may notice the ETFs are overweight outperforming areas of the market, notably financials, energy industrials. Specifically, RPV shows a hefty 30.6% tilt toward financials, 11.2% to industrials and 8.7% energy. FTA includes 27.9% financials, 12.4% industrials and 5.5% energy. PXLV holds 39.3% financials, 18.2% energy and 8.4% industrials. However, the performance of the value ETF portfolios have been slightly pared down by their large 10% plus weights toward the utilities sector, which has been the worst performing area of the market over the past month.
In contrast, the SPDR S&P 500 Growth ETF (NYSEArca: SPYG), which tracks the S&P 500 Growth Index, includes a robust 34.1% position in information technology, 16.5% health care and 9.2% consumer staples, all areas that have been either flat or down over the past month.
The value play may be seen as a basic type of enhanced or smart beta ETF strategy that specifically targets value stocks that tend to trade at a lower price relative to fundamentals, like dividends, earnings and sales. Along with the simple pure value play, such as RPV and PXLV, the other value-focused ETFs may also incorporate other factors in their screening process.
For example, FTA screens for growth factors including 3-, 6- and 12- month price appreciation, sales to price and one year sales growth, and separately on value factors including book value to price, cash flow to price and return on assets.
The value style has also been a popular play among ETF investors. Over the past month, the Vanguard Value ETF (NYSEArca: VTV) attracted $1.2 billion in net inflows and the iShares S&P 500 Value ETF (NYSEArca: IVE) saw $728 million in net inflows, according to XTF data. Year-to-date, VTV experienced $4.3 billion in inflows while IVE brought in $1.6 billion.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.