The value factor is lagging the growth and momentum factors this year, but when it comes to exchange traded funds, investors remain devoted to value funds. In recent weeks, value ETFs have been adding new assets at an impressive rate, indicating investors are comfortable betting the value factor could rebound in 2018.
Value stocks typically cover companies that trade at a lower price relative to fundamentals such as dividends earnings and sales, which are then considered undervalued by a value investor.
“Growth stocks have outpaced value since the end of the financial crisis,” reports Crystal Kim for Barron’s. “That’s an anomaly, and for 10 years investors have been waiting for the reversion to the long-term trend of value outperforming. There have been glimmers. Toward the end of 2016, value stocks started beating growth, but the rally faded as quickly as it began. Growth led, again, for much of 2017.”
Value investing is a popular long-term investment strategy. Value stocks have historically outperformed growth stocks, or companies with high earnings expectations, in almost every market over the long-haul. For instance, the MSCI USA Value Index has outperformed the MSCI USA Growth Index by an annualized 81 basis points since 1974 through September 2015.
The iShares MSCI USA Value Factor ETF (CBOE: VLUE) is a popular avenue for accessing value stocks while the Vanguard Value ETF (NYSEArca: VTV) is one of the largest smart beta ETFs of any stripe. In fact, several of the largest smart beta ETFs are value funds.