Value stocks had some moments in the sun last year, stoking optimism that more of the same could be on the way in 2022. A recent survey indicates that money managers are constructive on cheap stocks as potential winners this year.
Should that thesis be validated, exchange traded funds like the Invesco S&P 500 Pure Value ETF (RPV), stand to benefit. As it is, RPV is coming off a stellar run last year. In 2021, the Invesco ETF soared 34.2%, easily outpacing both the S&P 500 Value Index and the S&P 500 itself, confirming a case purity when it comes to value equities. The RPV methodology could serve investors well in 2022 if experts are right about value stocks.
“Value — equities that are inexpensive relative to earnings — was the most popular investing theme for this year among 106 institutional investors informally surveyed by Bloomberg News in the first half of December. About a fourth of them said cheaper, old-economy stocks such as banks are the place to be, over ideas such as green energy, growth, U.S. technology and emerging markets,” reports Abhishek Vishnoi for Bloomberg.
Major money managers such as BlackRock and Franklin Templeton are constructive on value for 2022, and the Federal Reserve is adding to the cause. The U.S. central bank recently signaled that high inflation is the primary economic enemy in 2022 and that it’s willing to deploy interest rate hikes to damp the hot Consumer Price Index (CPI).
“Higher rates reduce the value of companies’ future earnings, weighing especially on shares of fast-growing companies with much of their profits in the years ahead,” according to Bloomberg.
Moreover, rising rates are usually positive for the financial services sector, namely banks and insurance companies. That’s relevant to RPV investors because that sector accounts for more than 31% of the ETF’s weight, making it by far its largest sector exposure.
“Within value, industries that are benefiting from specific catalysts and increased earnings estimates should fare the best, according to Morgan Stanley strategists led by Graham Secker. They cited the auto industry and shares of banks and energy companies, both of which should see rising expectations for profit growth,” adds Bloomberg.
RPV has a 7% energy allocation and a 10.31% weight to the consumer discretionary sector, which is the home of automobile manufacturers.
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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.