In 2021, value stocks delivered some of their more impressive performances in recent memory with some exchange traded funds in the category topping rival growth funds and the S&P 500.
Some market observers are wagering that 2022 will bring more upside for inexpensive equities. That could prompt investors to evaluate value ETFs, including the Invesco S&P 500 Pure Value ETF (RPV).
The $3.15 billion RPV, which follows the S&P 500 Pure Value Index, is already reflecting some of that optimism. After gaining 1.91% last week, the Invesco fund is higher by nearly 7% year-to-date, as of January 14. Higher by 9% for the month ending January 14, RPV resides around all-time highs. Adding to the 2022 case for RPV are data suggesting that value stocks are doing what they’re supposed to do: offering investors value.
“Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, says that price-to-earnings ratios for growth stocks have ballooned to 31 from 22 during the pandemic, while those for value stocks have risen more modestly, to 16 from 13. The difference between the two current numbers—15—compares with a historical average of six,” reports Jack Hough for Barron’s.
With interest poised to rise this year, value stocks could be all the more alluring for investors. Higher rates pinch the longer-term cash flows of growth stocks. Conversely, the financial services sector is one of the prime destinations for value hunters, and that group is positively correlated to rising rates. RPV allocates 31.69% of its weight to that sector.
RPV also devotes 7.43% of its roster to energy stocks. While that’s not a massive percentage, it’s significantly overweight to energy relative to the S&P 500, and that’s something to consider given energy’s penchant for being a winning group when inflation soars, as it is doing today.
RPV offers another benefit: diversification away from broad market and growth benchmarks that are increasingly concentrated in a small number of stocks.
“But looking at returns over the past decade, the S&P 500 index has performed more like that growth ETF than the value one. That’s because the index and growth ETF have at times been dominated by the same world-beating tech giants. That has worked well, but it has also left passive investors all-in on growth,” adds Hough.
RPV has a tech allocation of just 4.78%, and none of its 123 holdings exceed weights of 2.13%.
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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.
