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Value ETFs Trumping Momentum ETFs: Here's Why

Sanghamitra Saha

Wall Street may be rallying hard in recent weeks, but this could not take worries out of investors’ minds. Value stocks have gained more than momentum stocks in recent months. There were heavy sell-offs in momentum stocks in September, and the underperformance of those once hot stocks has continued, per Bernstein’s Inigo Fraser-Jenkins.

In the past three months (as of Nov 5, 2019), Vanguard Value Index Fund ETF Shares VTV has added about 6.8% while iShares Edge MSCI USA Momentum Factor ETF MTUM has advanced 1.1%.

“Since the beginning of September, U.S. value stocks have risen about 10%, while U.S. momentum stocks have fallen more than 10%, according to Fraser-Jenkins’ data. In Europe, per Fraser-Jenkins, value stocks are up about 12%, while momentum shares have dropped about 7%,” as quoted on barrons.com.

Why Value Stocks Are Riding Higher

In the three-month period ended Nov 5, 2019, the S&P 500 gained 6.7%, the Dow Jones added 5.6% and the Nasdaq advanced 7.7%. Investors are perhaps partying on years of cheap money inflows on benign central banks’ polices. But they are overlooking the fact that even after practicing monetary easing for such a long period, the global economy has failed to find a firm footing. Also, after such astounding gains, thoughts of a correction in the market or overvaluation concerns are quite justifiable. 

Per the Earnings Trends issued on Oct 31, 2019, the third-quarter 2019 earnings scorecard says that 68.2% of the S&P 500 companies have reported with 0.6% decline in earnings on 4.9% higher revenues. While earnings growth is below what we had seen for this group of companies in other recent periods, revenue growth is in line.

Since the United States and China agreed to a "phase one" trade deal in October, Wall Street has rallied. The progress seemed to have mired a bit as it remains unclear when the duo will strike the deal. Moreover, after a recent rally, Morgan Stanley’s Garner believes that the U.S.-China partial trade deal is now priced in.

U.S. economic data points have failed to turn investors happy after Fed rate cuts in recent times.The U.S. manufacturing reading for the month of October marks contraction for three months in a row. September data for retail sales and home sales have also been downbeat. Moreover, the Fed has signaled no more easing ahead, which could act as a cause of concern (read: Forget Manufacturing Slowdown, Bet on These Industrial ETFs).

Value ETFs in Focus

Against this backdrop, below we highlight a few value ETFs that have been riding higher in the past one month (as of Nov 5, 2019). These funds have beaten the SPDR S&P 500 ETF (SPY) (up 6.4%) comfortably (read: Value Biotech ETFs & Stocks to Buy Now).

Invesco S&P MidCap 400 Pure Value ETF RFV – Up 13.3%

Deep Value ETF DVP – Up 13.1%

Invesco S&P SmallCap 600 Pure Value ETF RZV – Up 12.7%

Invesco S&P 500 Enhanced Value ETF SPVU – Up 12.6%

Invesco S&P SmallCap Value with Momentum ETF XSVM – Up 11.8%

Invesco S&P 500 Pure Value ETF RPV – Up 9.8%

AAM S&P Developed Markets High Dividend Value ETF DMDV – Up 8.7%

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Invesco S&P MidCap 400 Pure Value ETF (RFV): ETF Research Reports
 
Vanguard Value ETF (VTV): ETF Research Reports
 
Invesco S&P 500 Pure Value ETF (RPV): ETF Research Reports
 
iShares Edge MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports
 
Deep Value ETF (DVP): ETF Research Reports
 
Invesco S&P SmallCap 600 Pure Value ETF (RZV): ETF Research Reports
 
AAM S&P Developed Markets High Dividend Value ETF (DMDV): ETF Research Reports
 
Invesco S&P 500 Enhanced Value ETF (SPVU): ETF Research Reports
 
Invesco S&P SmallCap Value with Momentum ETF (XSVM): ETF Research Reports
 
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