With inflation the highest it’s been in decades and the Federal Reserve raising rates for the first time since 2018, investors are seeking more exposure to value strategies. But at the same time, there’s a tremendous amount of innovation in technology taking place, and the best way to capture the upside of these technological advances is through growth strategies.
Long-term investors who like both pure value and pure growth and don’t want to choose between the two could incorporate the Invesco S&P 500 Pure Growth ETF (RPG) and the Invesco S&P 500 Pure Value ETF (RPV) into a barbell strategy. With a barbelling strategy, investors with long-term return objectives can have the best of both worlds. And while one style is going to beat the other over shorter periods, they both can outperform over a longer period.
RPG seeks to track the investment results of the S&P 500® Pure Growth Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. The underlying index is composed of a subset of securities from the S&P 500® Index that exhibit strong growth characteristics.
“Companies within the growth segment offer tremendous profit potential since they are still in the early stages of their life cycle, which in turn also raises the risk level associated with this asset class,” an ETF Database analysis says. “Growth stocks may also appeal to those seeking capital appreciation versus dividend income, as these companies re-invest earnings.”
The split between general growth and value is readily apparent, especially when looking at the S&P 500 growth index versus the value index. Value was leading handily by the end of May before growth surged past it by mid-summer.
Growth stocks may also appeal to those seeking capital appreciation versus dividend income, as these companies re-invest earnings. RPG is linked to an index consisting of roughly 130 holdings, and exposure is tilted most heavily towards consumer cyclical and technology.
Meanwhile, RPV tracks the S&P 500 Pure Value Index and offers investors access to large-cap U.S. value stocks. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.
RPV maintains a “pure value” focus, holding a relatively small number of firms that demonstrate the most significant value characteristics. RPV is a more targeted choice for investors looking to focus explicitly on value companies.
RPV’s underlying index is composed of a subset of securities from the S&P 500 Index that exhibit strong value characteristics. Invesco’s strategy includes:
- Assigning securities two “style scores” — one for value and one for growth — based on the characteristics of the issuer. The “value score” is measured using three factors: book-value-to-price ratio, earnings-to-price ratio, and sales-to-price ratio. The “growth score” is measured using three other factors: three-year sales per share growth, the three-year ratio of earnings per share change to price per share, and momentum (the 12-month percentage change in price).
- The ratio between the growth score and the value score is used to rank each stock as either deep value, blend, or deep growth, and only the deep value stocks are selected and are factor-weighted such that securities demonstrating the strongest value characteristics receive proportionally greater weights.
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