There has been plenty of speculation regarding when value stocks will finally start outperforming growth names in earnest. Much of that chatter is attributable to growth’s lengthy out-performance of value. For nearly the entirety of the recent U.S. bull market, growth stocks and exchange traded funds have bested their value rivals.
While 2019 is still in its nascent stages, signs indicate value is on the mend. Year-to-date, the SPDR Portfolio S&P 500 Value ETF (NYSEArca: SPYV) is beating both its growth counterpart and the S&P 500.
SPYV’s underlying index “contains stocks that exhibit the strongest value characteristics based on: book value to price ratio; earnings to price ratio; and sales to price ratio,” according to State Street.
It is not uncommon for value, or any factor for that matter, to under-perform for certain periods of time, but the length of value’s current laggard status is unusual.
“The last ten years have been a difficult time for value investors with a marked period of underperformance—in fact, an unusually extended period,” said State Street in a recent note. “This can be due to a number of reasons, but key among them has been the unusual level of monetary accommodation provided by low rates and quantitative easing (QE). This has driven risk seeking behavior by investors at the cost of fundamentals that normally provide a catalyst for value stocks.”
What’s Next for SPYV
SPYV holds 383 stocks. Like many value strategies, the fund is heavily allocated to financial services with a weight to that sector of 22.17%. What may surprise some investors is that SPYV’s second-largest sector is weight is a 15.09% allocation to technology.
“For investors who want to position themselves to capture the potential upside after an inflection point in the cycle, we believe three sectors could be attractive targets: Financials, Resources and Industrials,” according to State Street.
Industrial and energy names combine for 18% of SPYV’s roster. SPYV charges just 0.04% per year, or $4 on a $10,000 investment, making it one of the cheapest value ETFs on the market.
“Value investing is never an easy ride, but that is how investors earn the risk premia they are paid over the long term. This style requires patience and a long-term perspective,” notes State Street.
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