These remain trying times for value stocks while growth fare continues soaring. Investors looking to participate in growth’s upside while positioning for a value rebound can do so under the umbrella of a single ETF thanks to the Principal U.S. Large-Cap Multi-Factor Core Index ETF (PLC).
PLC, which is about a year old, debuted last July, is designed to provide broad index-aware U.S. large cap equity exposure while incorporating a multi-factor model and modified weighting process to potentially enhance the risk/return profile. The multi-factor model seeks to identify equity securities of companies in the Nasdaq US Large Cap IndexSM that exhibit potential for high degrees of sustainable shareholder yield (value), pricing power (quality growth), and strong momentum. The Fund’s objective is to track the Nasdaq US Large Cap Select Leaders Core IndexSM.
“Growth has been running up the score on value for more than 10 years,” notes Morningstar. “If not for 2016, when U.S. election results sent value stocks soaring, the long-term gap between growth and value would be even larger. Consider the chasm between growth and value over the trailing five-year period through June 30, 2020.”
PLC Has Potential
Principal’s multi-factor Core ETFs, including PLC, are designed to serve as the foundation of an investor’s portfolio, complementing alpha-generating, high active share strategies. As a global asset manager with a heritage of factor investing expertise, Principal now offers a broader set of factor-based strategies to address a wider net of investment objectives and outcomes.
“Investors should remember that growth and value go through cycles. The value factor’s demise was also proclaimed in the late 1990s when the ‘New Economy’ was being created. Noted value investors gave up waiting and retired,” according to Morningstar.
A point in PLC’s favor is that’s not heavily allocated to value sectors, some of which are disappointing this year, but the fund does feature larger weights to growth groups that are delivering for investors.
“The median covered stock in the growth-leaning technology sector was 13% overvalued as of June 30. On the flip side, analysts viewed the financial-services, energy, industrials, and consumer defensive sectors–traditional value sectors–as undervalued,” according to Morningstar. “When will value come back? No one knows. Lots of forces beyond valuation move markets in the short term. But investors who neglect value do so at their peril. If 2020 has taught us anything, it’s that market inflection points can be rapid, violent, and unpredictable.”
For more on multi-factor strategies, visit our Multi-Factor Channel.
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.