As volatility rained down on the markets last week, investors were seeking refuge in value–in particular, the iShares Russell 1000 Value ETF (NYSEArca: IWD). IWD saw an influx of investor capital worth $423 million, making it the second largest weekly inflow in 2018 and the most since July.
Needless to say, October hasn’t been kind to U.S. stocks as the technology sector, in particular, got trounced with the S&P 500 playing a game of “Follow the Leader ” with the Nasdaq Composite, heading into correction territory with as much as a 10% slide last week from its 52-week high. However, the same doom and gloom can’t be said for BlackRock’s IWD, which took in $580 million alone during the month of October.
“October has provided plenty of drama this year,” said John Stoltzfus, the chief investment strategist at Oppenheimer & Co. “It could prove to be the best buying opportunity investors have had in some time.”
IWD seeks to track the investment results of the Russell 1000® Value Index, which measures the performance of large- and mid- capitalization value sectors of the U.S. equity market. IWD generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.
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If stocks, particularly within the technology sector, are to come back, it will need some help from the heaviest of hitters–the FANG (Facebook, Amazon, Netflix, Google) stocks, which have been languishing for the most part amid October’s sell-off. However, they are the same names that helped spur the 10-year bull run and if the markets want to end 2018 on a positive note, it will need the FANG stocks to perform.
The Nasdaq Composite was down over 200 points Friday as the once-heralded FANG stocks continued to sell off. Last week, the Nasdaq experienced its worst loss since August 2011 as companies like Texas Instruments and AT&T reported weak third-quarter results.
Some market experts feel that despite what FANG stocks do, the U.S. capital markets will continue to thrive. According to economist Mohamed El-Erian of Allianz, the latest sell-offs don’t signal that the party is over for U.S. equities, but that a venue change may be in store–one where value continues to come to the forefront and the growth-momentum plays of the decade-long bull run take a step back.
“I don’t think the party is over. I think what we are seeing is a transition in regimes,” El-Erian told CNBC. “One from where markets were comforted by ample, predictable liquidity to now having to recognize that divergent fundamentals are going to be the driver of asset prices.”
If volatility continues to fuel the rest of 2018 and beyond, the markets can expect to see more value-oriented plays as investors become more defensive with their portfolios and cycle out of growth-fueled investments.
“When momentum starts to flatten out or not continue in its existing incline, value starts making more sense because you can still get the growth by purchasing or investing in equities that basically are on sale,” said Kevin Miller, chief executive officer of Minnesota-based E-Valuator Funds. “That’s why at this point in time value will be a preferred spot to be.”
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