Chatter is increasing that the value factor could finally be ready to make a run at growth. While it remains to be seen just how credible that run will be, the Direxion Russell 1000 Value Over Growth ETF (NYSEArca: RWVG) is an idea to consider.
RWVG seeks investment results that track the Russell 1000® Value/Growth 150/50 Net Spread Index. The fund, under normal circumstances, invests at least 80% of its net assets in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Value Index (the “Long Component”) and 50% short exposure to the Russell 1000® Growth Index (the “Short Component”). On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value.
“Within large-cap stocks, growth continues to outdistance value by an ever-widening margin. With the exceptions of small drawdowns of less than 5% in 2013 and 2016, growth has been in a 13-year bull market. In a low-interest-rate environment, growth gets capitalized at higher multiples of earnings, growth, and revenue,” reports Andrew Addison for Barron’s.
As the U.S. economy looks to reopen, investors may be lured to head back into the turbocharged returns of growth equities, which fueled the extended bull run ahead of March’s sell-off. However, it’s difficult to discount value as a single factor investing alternative, especially with a lot of uncertainty still left with regard to the economy.
RWVG Right Now
The decade-long bull run put growth in the driver’s seat for the most part, but in the pandemic-riddled market these days, value investing can work. However, like the right coach with the right player in sports, a value strategy takes the right investor.
First of all, investors looking for value plays must first understand what makes a company valuable. Whether it’s the product or service itself or its price-to-value ratio, investors will have to do their homework.
“Conversely, the Russell 1000 Value/Russell 1000 ratio continues cratering to new lows. We’ll be watching for signs that momentum begins to make higher lows to signal that value may be bottoming,” according to Barron’s.
For more alternative investing ideas, visit our Alternatives Channel.
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.