As Wall Street is set for a monthly loss and its worst quarter since the COVID-19 pandemic started, value stocks and related exchange traded funds have still held up better than their growth counterparts in September.
The Russell 100 Value Index dipped 2.1% over the past month, while the Russell 1000 Growth Index declined 4.2%.
Meanwhile, all three major U.S. benchmarks experienced their worst quarterly performance since the starting months of 2020 when the start of the coronavirus pandemic brought the global economy to a grinding halt. The September to October months have historically been the weakest and most volatile period of the year for the equity markets.
On Thursday, losses on the last day of the quarter were pared by mid-afternoon after the U.S. Senate approved a bill to avert the partial government shutdown, Reuters reports.
The S&P growth index plunged about 5% over September but was on course to post a quarterly gain of more than 2%, while its value counterpart only dipped about 3% this month but was nearly 1% lower for the past three-month period.
“There has certainly been a sea change especially this month, as a couple of events have occurred,” Tim Ghriskey, chief investment strategist at Inverness Counsel, told Reuters.
“The rise in interest rates has caused a rotation out of growth stocks, which is tied to the increase in inflation expectations, and indeed the Fed at their last meeting increased their near-term expectations for inflation,” Ghriskey added.
ETF investors interested in a targeted approach to the value segment can look to the American Century STOXX U.S. Quality Value ETF (NYSEArca: VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield, and cash flow yield, along with a sustainable income score based on dividend yield, dividend growth, and dividend coverage.
The American Century Focused Large Cap Value ETF (FLV) tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental value measures, like earnings and the book value of assets.
Lastly, the Avantis U.S. Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in U.S. small-cap companies. It is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.
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