Costs continue to be a key driver when it comes to investors’ decisions on where to allocate their capital. As such, value equities could be seeing more strength through the rest of 2019 and it eked past growth in performance during the month of October.
“Despite struggling in early October, Value recovered and ultimately outperformed, advancing 0.9% in October, and remains ahead in November,” wrote a group of Bank of America Merrill Lynch analysts led by Savita Subramanian.
More importantly, this isn’t a trend the analysts see as short-lived.
“We think this trend could continue,” the analysts wrote.
Furthermore, value-oriented equities have not seen prices this low since the financial crisis over 10 years ago.
“The only time in history that value has gotten this cheap was in 2003 and 2008, when Value outperformed Momentum by 22ppt and 69ppt, respectively, over the subsequent 12 months,” the analysts wrote.
“Amid macro uncertainty, valuation dispersion has risen to the highest levels since the Financial Crisis,” the analysts wrote in a September note.
This is a solid sign for investors looking to capitalize on value as more strength could be ahead.
“When valuation dispersion was this high or higher, value stocks have consistently outperformed Growth (95% of the time) over the subsequent 12 months, by 24ppt on average,” the analysts wrote.
Investors looking to add value ETFs to their portfolios can look to the iShares Edge MSCI USA Value Factor ETF (BATS: VLUE) and the iShares Edge MSCI USA Momentum Factor ETF (BATS: MTUM).
Relative ETFs to Trade
ETFs to play include the Direxion Russell 1000 Growth Over Value ETF (NYSEArca: RWGV) and the Direxion Russell 1000 Value Over Growth ETF (NYSEArca: RWVG). For investors looking for continued upside in growth-oriented equities over value-oriented equities, RWGV offers them the ability to benefit not only from growth opportunities potentially performing well, but from their outperformance compared to value.
RWVG seeks investment results that track the Russell 1000® Value/Growth 150/50 Net Spread Index (the “index”). The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of exchange-traded funds (“ETFs”) on the Long Component of the index.
RWVG’s index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Value Index (the “Long Component”) and 50% short exposure to the Russell 1000® Growth Index (the “Short Component”).
For more relative market trends, visit our Relative Value Channel.