Last year, the value factor was plagued by the Federal Reserve. Financial services and utilities names were value residents and those sectors have been hampered by speculation regarding when the Fed would raise interest rates or if the central bank can even make that move. When Treasury yields climbed, financials got a lift, but utilities were hampered. The opposite was true when yields fell, but the result was less-than-impressive performances for sector ETFs tracking financials services and utilities stocks.
Well, in this space we forecast the resurgence of the value factor and the relevant exchange traded funds. That resurgence has been on display this year as investors are eschewing growth and momentum for value.
Interestingly, data suggest investors have grown tired of waiting for the value factor's resurgence.
“In fact, there is evidence that some value investors are beginning to capitulate after years of watching growth outperform,” said Morningstar.
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Looking At The Data
Data show “trailing 12-month flows of investor capital into and out of value, growth, and blend mutual funds and ETFs across large-, mid-, and small-cap stocks dating back to the beginning of 1994. As of the middle of 2015, the trend turned negative for value funds, perhaps signaling that after nearly a decade of underperformance, value investors are throwing in the towel,” according to the research firm.
The PowerShares Dynamic Large Cap Value Portfolio (NYSE: PWV) is one of he competitors in a crowded field of value ETFs. PWV follows an index that “is designed to provide capital appreciation while maintaining consistent stylistically accurate exposure. The Style Intellidexes apply a rigorous 10 factor style isolation process to objectively segregate companies into their appropriate investment style and size universe,” according to PowerShares.
Closer Look At PWV
Among value ETFs, PWV is a concentrated offering with just 50 holdings. Although the utilities sector is considered by many to be richly valued, the groups is PWV's fourth-largest sector weight at 11.5 percent. Consumer stocks, both discretionary and staples, are also viewed as expensive relative to the broader market, but those sectors combine for just over 10 percent of PWV's lineup.
The $983.1 million ETF underscores the value's factors 2016 reclamation project as it is higher by more than three percent, well ahead of the S&P 500. Investors would do well to get involved before PWV takes off too much.
“This is how it plays out in practice: Fed up with years of underperformance, value investors will flee value funds and drive up prices elsewhere only to subsequently come down with a case of buyer's remorse as their new funds of choice disappoint. Value will inevitably rebound, and those 'value' investors will invariably chase performance back in the same direction they came from,” adds Morningstar.
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