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.”
Exploring Value
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.
“Wells Fargo’s Christopher Harvey is turning positive on beaten-down value stocks. He expects them to be the big winners in the second half of 2019,” according to CNBC. “Harvey calls it a ‘pretty big departure’ from his former stance — acknowledging he didn’t miss many opportunities to dismiss the group as a profitable play over the past two years.”
Other popular value ETFs include the iShares MSCI USA Value Factor ETF (Cboe: VLUE). VLUE “seeks to track the performance of an index that measures the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations, before fees and expenses,” according to iShares.
“Harvey predicts biotech, REITs and food, beverage and tobacco could see the most substantial gains among value plays, which typically represent stocks that are trading below their fundamentals and priced under their peers,” reports CNBC.
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