While the markets just experienced their worst September in almost a decade, value exchange traded fund investors fared better than their growth counterparts.
Over the past month, the iShares S&P 500 Value ETF (NYSEArca: IVE) declined 2.4%, compared to the 5.1% pullback for the iShares S&P 500 Growth ETF (NYSEArca: IVW) and the 4.0% fall off in the broader iShares Core S&P 500 ETF (NYSEArca: IVV).
Value stocks, or companies shares that trade at a low multiple of their book value, or net worth, outperformed growth stocks for the month as investors shifted away from the high-flying technology sector that led the market rally this year. Over the past month, many investors looked for opportunities in industries like materials, transportation and utilities, which have been badly beaten down by the coronavirus pandemic this year, the Wall Street Journal reports.
Some investors believe the shift simply reflects a temporary profit-taking from growth stocks to less-expensive value shares. Other observers, though, argue that this value-investing uptick could be the start of a longer trend. The slowly recovering economy and a potential coronavirus vaccine could help support value stocks as consumers boost their spending. Value stocks typically to better as an economy rebounds from a recession.
Analysts also project that a potential Democratic sweep of the White House and Congress might could further bolster the value play. Democratic presidential candidate Joe Biden’s corporate tax plan could more deeply affect growth sectors, like technology, and the ongoing antitrust scrutiny of big tech from both presidential candidates could also further weigh on the growth trade.
Meanwhile, in a lower-for-longer interest rate environment, investors could turn to value stocks for their more attractive dividend yield to bolster a fixed-income portfolio.
“Investors are looking for other opportunities…so where do I go if I want either a market return or some kind of cash yield?” Tom Stringfellow, president and chief investment officer of Texas-based Frost Investment Advisors, told the WSJ. “Most value stocks have some, or decent, yield. So if I have a chance for appreciation and I have a yield of 2 or 3, maybe 4%, then all of a sudden my investment choices become a little more narrow [with opportunities in]a few of the technology, but a lot of the value and cyclical stocks.”
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