It was a strong first half for value trading.
The iShares S&P 500 Value ETF (IVE) beats the iShares S&P 500 Growth ETF (IVW) in 2021, up 16% from the 10% growth. Small and mid-cap stocks in particular were the outliers, outperforming their larger counterparts in recent months.
Growth has led for years as investors clung to more traditional, market-cap-weighted exchange-traded funds, and the recent switch marks a change in the calculation, said Dave Nadig, chief investment officer and research director at ETF Trends.
“The flip we’ve seen where some of the small-cap or mid-cap value plays are starting to grab investors’ attention means a lot of those individual stocks are now appearing in momentum ETFs and funds. really changing dynamics here,” Nadig said Monday on The Washington City Times’s “ETF Edge.”
“I think we’re in a bit of a rotation,” he added. “A lot of it is because there is no alternative market. Investors and advisors really stick to the stock markets.”
Value hunter Gerard O’Reilly, co-CEO and Chief Investment Officer at Dimensional Funds, said that small caps and value plays have shown remarkable outperformance over the past 12 months.
“There’s a reason those stocks have lower prices and investors demand higher returns by holding them,” O’Reilly said in the same “ETF Edge” interview.
While growth has won out over the past five, ten and twenty years, “some of those returns have been largely unexpected,” he said, citing annual returns of about 20% over the past ten years.
“When you invest, you invest based on expectation,” he said. “If there’s something unexpected, it doesn’t mean that growth stocks have a 20% expected return in the future, it means that they have had unexpected luck or an unexpectedly good windfall, possibly due to the Fed or other reasons.”