The top three sectors in this Value fund are: Technology (22.69% of assets), Healthcare (13.25%) and Financial Services (12.44%). The fund has a current dividend yield of 2.77%, paid quarterly.
iShares Edge MSCI USA Value Factor ETF (VLUE)
from Pivotal Point
Recently, the new financial data website Koyfin reported that value far outpaced growth and small stocks outpaced large stocks. The Koyfin finding was corroborated by the performance of two opposite funds: iShares Edge MSCI USA. Value Factor ETF (VLUE) outpaced iShares S&P 500 Growth ETF (IVW) +0.6% to -0.8%.
Jason Goepfert of SentimenTrader.com notes that attempts to call a turn in the underperformance of value have been going on for years. And so far, all have been false starts. But it is now impossible to ignore the difference in returns these moves have generated, with the ratio between them exceeding prior multiyear extremes.
Over the past three years, value stocks have underperformed growth stocks by more than 37% — the most negative spread in years and approaching one of the most extreme levels since 1928. Goepfert riffed his database to determine how the ratio between value and growth did after the 3-year spread reached this degree. Turns out it was a good sign for value … not so much for growth. The ratio between them narrowed in the following months, with only one exception when looking over the next two years. This was not a short-term phenomenon.
The absolute performance of value stocks was impressive, Goepfert discovered. They rose over the next one, two and three years every time with highly positive returns: By an average of +25.7% in the following year, 47.3% over the following two years and 55.9% over three years, with gains every time. Meanwhile, growth stocks only rose 19.7% in the following year (which is still very good), +11.1% over the following two years (not as great) and 27.6% over three years (meh).
As for the S&P 500 itself, next-year returns were 15.6%, two-year returns were 16.2% and three-year returns were 21.6%.
Some of the biggest constituents of the iShares Value ETF are AT&T (T), Intel (INTC), IBM (IBM), Bank of America (BAC), Citigroup (C), Chevron (CVX), Pfizer (PFE) and General Motors (GM).
The bottom line?
It looks like a major long-term mean reversion is getting under way. This should be at the front of our minds when picking stocks to own over the next one to three years. Most people will not catch onto the value-growth switch for quite some time. Smart investors should use this early lead to their advantage.
Jon Markman, Pivotal Point, issues@e.moneyandmarkets.com, 1-800-291-8545, October 25, 2019