“Historically, momentum performs best in an environment of low and stable volatility—exactly the regime that has dominated this year,” adds BlackRock. “Although talk of reflation faded, low interest rates, a soft dollar and historically tight spreads kept financial conditions absurdly easy. In June, the Global Financial Stress Index hit its lowest level since late 2014.”
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.
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.
The value factor historically performs well over longer holdings, but a current challenge is the dearth of U.S. stocks considered credible value plays. The financial services sector is one of a small number of groups considered legitimate value destinations at the moment.
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