After trailing growth and momentum fare last year, value stocks continue to confound investors in 2018. For example, the iShares Russell 1000 Value ETF (NYSE:IWD), one of the largest exchange traded funds dedicated to value stocks, is off nearly 1 percent year-to-date.
"To start 2018, U.S. value strategies have lagged growth alternatives and broader benchmarks, as value funds tend to hold less exposure to technology stocks that have climbed higher, CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a Tuesday note.
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However, there are exposure differences in popular value ETFs and mutual funds that help explain the performance distinctions seen in 2018 and in years past. Increasingly, investors are looking at funds using metrics that have historically demonstrated excess market returns over the long term, known as factors. These include positive momentum, smaller size, low value and dividend yield.
The $37-billion IWD follows the Russell 1000 Value Index. IWD holds 710 stocks, about 27.6 percent of which hail from the financial services sector. Four of IWD's top 10 holdings are financial services stocks.
A Struggling Stablemate
IWD is not alone in the arena of struggling value ETFs. The iShares S&P 500 Value ETF (NYSE:IVE) is down about 2 percent this year. The $14.8-billion IVE follows the S&P 500 value index and holds 389 stocks.
Like IWD, IVE is heavily allocated to the financial services sector. IVE allocates nearly 25.4 percent of its weight to that sector. Both IWD and IVE feature double-digit weights to the energy sector, one of the worst-performing groups in the S&P 500 this year. With energy stocks struggling, some value strategies are likely to follow suit.
IVE and IWD have an average standard deviation of 10.40 percent, only modestly higher than the 10.16 percent found in the S&P 500.
Another Sector Concern
Some value ETFs, including IVE and to a lesser degree IWD, have an issue with consumer staples exposure. The S&P 500 Consumer Staples Index is down about 7.6 percent year-to-date, a loss that could grow if rising interest rates finally serve to boost the dollar.
Consumer staples are IVE's third-largest sector weight at 10.6 percent, while IWD has an almost 8-percent weight to that struggling sector.
CFRA is bullish on IWD and IVE, applying Overweight ratings to both value ETFs.
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