Calls are mounting for value stocks and the related ETFs to bounce back this year, a familiar refrain as value trailed growth for much of the decade-long bull market in U.S. stocks.
When stocks stumbled in the fourth quarter, there was evidence of investors rotating away from growth to value, a trend that saw capital flow into ETFs such as the iShares Russell 1000 Value ETF (NYSEArca: IWD).
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.
“The Russell 1000 Value, which tracks the value stocks of large U.S. companies, closed in bear market territory on Christmas Eve. It had hit its all-time high last January,” reports CNBC. “But just like the overall market, the index has bounced back since that Dec. 24 low — up 5 percent since then.”
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.