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Value Stocks Crush Growth Shares To Shine In 2022

By Mike Zaccardi, CFA, CMTStock MarketsJun 09, 2022 06:33AM ET
www.investing.com/analysis/value-stocks-crush-growth-shares-to-shine-in-2022-200625529
Value Stocks Crush Growth Shares To Shine In 2022
By Mike Zaccardi, CFA, CMT   |  Jun 09, 2022 06:33AM ET
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VBK
-0.63%
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VTV
-1.21%
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VBR
-0.68%
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This article was written exclusively for Investing.com

  • Value is beating growth by 22% in ‘22
  • Growth funds, heavy in the Information Technology sector and light in resource-sensitive stocks, remain in a downtrend off their early-year peak
  • Traders should eye one key price point to confirm a bullish move in U.S. large-cap value

Value investors are finally basking in the sunshine. After so many years of sharp underperformance, low price-to-earnings and high book-to-market, Buffett favorites are leading this stock market recovery.

A telling chart, below, is the annual performance gap between the U.S. large-cap growth index versus the U.S. large-cap value index. According to data from Portfolio Visualizer, after five consecutive years of growth dominating value, beaten-up value firms outpace growth stocks by a whopping 22% in 2022.

Value Over Growth This Year

Annual relative returns for Large-Cap Growth vs Large-Cap Value
Annual relative returns for Large-Cap Growth vs Large-Cap Value

Source: portfoliovisualizer.com

What’s Up with Small-Caps?

I like to dig a little deeper to see what small caps are doing. Indeed, small-cap value shares are crushing small-cap growth. Through June 8, the Vanguard Small-Cap Value Index Fund ETF Shares (NYSE:VBR) is down just 6.5% this year while the Vanguard Small-Cap Growth Index Fund ETF Shares (NYSE:VBK) is down a whopping 23%.

Sector Differences Play a Big Role

What’s driving the growth/value disconnect in 2022? Check out the sector weights. The small-cap value ETF is just 6% invested in the Information Technology sector. Contrast that to small-cap growth’s 21% weight. Moreover, Energy and Materials have been strong areas over the last several months—VBR has 14% in those hot sectors while VBK’s exposure is virtually nothing. Of course, Financials play a crucial role in all value stocks, and that sector has been rather weak year-to-date.

Small-Cap Value and Small-Cap Growth Sector Weights

Small-Cap Value vs Small-Cap Growth Sector Weights
Small-Cap Value vs Small-Cap Growth Sector Weights

Source: Vanguard

The Technical Take

So, what does the future hold for value investors? Is this just a blip on the radar or should we expect more alpha from the industrial-heavy and tech-light market niche?

The technical chart shows a vastly different picture than the down-trending nature of many large-cap growth ETFs. Vanguard's Value Index Fund ETF Shares (NYSE:VTV) is simply in a choppy trading range. VTV has been stuck in the $134 to $152 area for the better part of the last 12 months.

Vanguard Value ETF: A Choppy Mess

VTV Daily
VTV Daily

Source: Stockcharts.com

Everything is relative in financial markets. A hot mess is better than a downtrend. Bulls want to see VTV climb above $152 before getting too excited. The bears are ready to pounce on a breakdown through the $134 spot. Next support comes into play at the $121-$124 range—the pre-pandemic peak and the early 2021 spike.

As far as an upside target, the $18 range mentioned earlier portends a measured move price objective to $170 on a bullish breakout.

The Bottom Line

Momentum is on the side of the value investors right now. I think that trend persists through the rest of the year.

I want to see VTV climb above $152—I assert that can happen if Financials start to participate in value’s relative strength to growth stocks. Rising rates and skirting a recession could be the fundamental catalysts that will send VTV to new all-time highs in the second half.

Value Stocks Crush Growth Shares To Shine In 2022
 

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Value Stocks Crush Growth Shares To Shine In 2022

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Comments (2)
Stephen Rickman
Crotty Jun 18, 2022 1:18AM ET
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I’ve averaged my VTV holdings down, starting at 143, now its averaged down to 132. I know it can go lower, but if I had to just live with this price forever I’d be ok with it.
Brian Flannigans
Brian Flannigans Jun 09, 2022 1:01PM ET
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that isn't a bad idea brother
 
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