Value ETF Style is Back in Vogue

Growth stocks have surged this year in the ongoing post-election rally, but more recently, the value style and related exchange traded funds are beginning to pull ahead.

Year-to-date, the iShares Russell 1000 Growth ETF (NYSEArca: IWF) jumped 28.2% and iShares Russell 1000 Value ETF (NYSEArca: IWD) increased 11.5% while the blended iShares Russell 1000 ETF (NYSEArca: IWB) rose 19.7%.

However, over the past month, the value style is speeding up, with IWD up 2.5%, compared to IWF’s 1.7% rise and IWB’s 2.1% gain.

“Several factors are driving value indexes’ recent resurgence,” Alec Young, MD global markets research for FTSE Russell, said in a research note. “First, the sheer magnitude of growth indexes’ YTD outperformance has fueled portfolio rebalancing into value in anticipation of mean reversion. Second, the increased likelihood of tax reform legislation has boosted investors’ economic optimism, helping value stock indexes, which tend to be more cyclical than their growth counterparts. In addition, value indexes have benefited from greater exposure to domestic industries like Financials and Telecommunications that are seen as potentially benefiting the most from tax reform and have thus risen sharply of late.”

Specifically, IWD includes a hefty 26.9% tilt toward financials, followed by 13.4% health care, 10.5% energy and 8.6% consumer staples. Telecom also makes up 2.8% of the fund’s portfolio.