After nearly a decade of growth investing delivering greater returns than their value brethren, a rotation by investors away from growth stocks to value stocks is evident this year. Among several reasons for this switch, investors are primarily positioning themselves to reap the benefits of an anticipated economic recovery by betting on undervalued cyclical stocks. Given the solid growth prospects of undervalued stocks, we think it could be wise to bet now on value ETFs Vanguard ETF (VBR), iShares S&P ETF (IVE), iShares Russell ETF (IWN), and iShares MSCI ETF (VLUE). Read on for details.Value investing is one of Wall Street's most popular strategies. That’s because it's one of the most lucrative options for long-term investors. And value exchange-traded funds (ETFs) allow investors to buy a basket of value stocks with a single investment, offering diversification and reducing risks. With 73 ETFs traded in the U.S. markets, value ETFs have $328.54 billion in total assets under management. These funds’ average expense ratio is 0.34%.
While growth investing proved to be more profitable than value investing over the past decade, the current, impending, economic recovery positions value stocks well to outperform their growth counterparts. That’s because the shares of many quality companies became undervalued thanks to a temporary pause in their businesses amid the worst of the COVID-19 pandemic and consequent shift in investors’ attention away from them. Now, as the economy enters a recovery phase, investors are rotating away from pricey growth stocks to quality bargains. This is evidenced by the SPDR Portfolio S&P 500 Value ETF’s (SPYV) 13.5% returns so far this year versus the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 9.1% gains.
As such, we think investing in the following value ETFs could now be rewarding: Vanguard Small-Cap Value Index Fund ETF Shares (VBR), iShares S&P 500 Value ETF (IVE), iShares Russell 2000 Value ETF (IWN), and iShares Edge MSCI USA Value Factor ETF (VLUE).