With growth stocks supporting the market to start 2020 an with some taking on increasing prominence in the S&P 500, it’s not surprising that the growth factor is outpacing its value. That scenario is particularly acute this year as the S&P 500 Growth is up 2.34% while its value counterpart is lower by 2.64%.
For investors looking to bet on a value resurgence, the iShares MSCI USA Value Factor ETF (CBOE: VLUE) is one popular way for investors to track the value style. VLUE follows the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations. Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations.
“The value factor has struggled for the better part of the past decade, not only underperforming other factors but delivering negative returns,” said BlackRock in a recent note. “A look at the S&P 500 Growth and Value indexes shows that growth outpaced value by more than 80% over the 10 years ended Dec. 31, 2019.”
A Reversing Trend
Value investing is a popular long-term investment strategy. Value stocks have historically outperformed growth stocks, or companies with high earnings expectations, in almost every market over the long-haul, but that trend reversed in a big way during the 2010s decade.
“The concept of value investing is fairly intuitive and, for that reason, is often well received by many investors,” according to BlackRock. “At its most basic level, value implies buying low and selling high ― the crux of fruitful investing. A value strategy also presumes there is some justice in investing ― that stock prices ultimately must reflect a company’s underlying fundamentals.”
Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations.
Investors can also look to value-oriented plays on popular benchmarks. For example, the iShares S&P 500 Value ETF (NYSEArca: IVE), Vanguard S&P 500 Value ETF (NYSEArca: VOOV) and SPDR S&P 500 Value ETF (NYSEArca: SPYV) target S&P 500 with a particular focus on value.
For more relative market trends, visit our Relative Value 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.