Value stocks have had a rough go of things against their growth rivals for much of the previous, but early in 2019, there are inklings that value stocks and the related ETFs are rebounding.
A new exchange traded fund offers investors a compelling avenue for profiting from value’s resurgence while also exploiting potential weakness in growth stocks. The Direxion Russell 1000 Value Over Growth ETF (NYSEARCA: RWVG) debuted last month. RWVG follows the Russell 1000 Value/Growth 150/50 Net Spread Index.
“On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a value over growth investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component,” according to Direxion.
RWVG is part of a broader suite of relative weight ETFs from Direxion.
““The ETFs seek to track indexes from FTSE Russell and MSCI that capture common macro thematic views, without the typical constraints encountered with other funds. Investors who deploy some level of thematic views in their investment process can now use shorting to enhance their long exposure,” according to Direxion.
Value Investing Call
Conventional wisdom dictates that, over the long-term, value stocks outperform. Well, the length of the current bull market in U.S. stocks qualifies as “long-term,” and for much of this move higher, value stocks have been trailing their growth counterparts.
“While no one can predict how growth might perform relative to value going forward, market experts from Direxion observed a narrowing of the gap between these two styles late last year,” said FTSE Russell in a recent note.
Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations.
“According to David Mazza, managing director and head of product at Direxion ETFs, the gap between the price-to-sales ratio of growth relative to value has narrowed, which may be good news for value,” according to FTSE Russell.
For more on relative value investing ideas, visit our Relative Value 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.