Value stocks

Investors are turning to value stocks in 2022. But are you surprised by the content of your value ETF?

Happy Thursday! Markets reporter Christine Idzelis is covering ETF Wrap this week for MarketWatch’s Mark DeCambre.

For this edition, I spoke with Todd Rosenbluth, head of ETF and mutual fund research at CFRA, about the “significant shift of investors toward value and away from growth that coincides with the likelihood that rising interest rates become a reality”. According to Rosenbluth, “what’s inside your value ETF might surprise you.”

I also caught up with Morgan Creek CEO Mark Yusko about his company’s new SPAC Arbitrage ETF, which he says is designed to provide investors with an alternative to cash amid the current interest rate challenges. low interest and high inflation.

As usual, send tips or comments. You can also follow me on Twitter at @cidzelis and find Mark at @mdecambre.

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Are Value ETFs surprising?

Value stocks have been hot for exchange-traded fund investors this year, amid heightened anticipation that the Federal Reserve will begin to fight inflation by raising its benchmark interest rate by nearly zero.

In 2022, investors poured about $2 billion into ETFs based on the S&P 500 Value Index as of Feb. 4, while withdrawing a similar amount from S&P 500 Growth funds, according to Todd Rosenbluth, head of ETF research. and mutual funds at CFRA.

“It’s a significant shift toward value and away from growth that coincides with the likelihood of higher interest rates becoming a reality,” Rosenbluth said in a phone interview. “People tend to think of certain sectors as being more value driven,” such as finance, energy and consumer staples, he said.

But “what’s inside your value ETF might surprise you,” Rosenbluth wrote in a note this week, saying the S&P 500 Value and Russell 1000 Value indices hold stocks in all 11 sectors according to the global industry classification standard.

And not all value ETFs are built equal.

For example, the iShares S&P 500 Value ETF IVE,
holds interests in Visa Inc. V,
and Mastercard Inc. MA,
increasing its exposure to the information technology sector relative to the iShares Russell 1000 Value ETF IWD,
who does not share those holdings, according to his rating.

“Technology tends to be viewed as a growth industry,” Rosenbluth told MarketWatch. “It’s just about making sure you know what you’re getting.”

There’s nothing “wrong” with seeking bets on “value-oriented” tech stocks, he said, but explained that some investors might aim to reduce exposure to the tech sector in their wallets. Or, financial-savvy investors may want to compare sector weightings among value ETFs, according to Rosenbluth.

The iShares S&P 500 Value ETF recently had a smaller position in Financials compared to the iShares Russell 1000 Value ETF, but larger holdings in the Consumer Discretionary, Consumer Staples and Consumer Staples sectors. technology, according to the CFRA note.


The iShares Russell 1000 Value ETF is more than twice the size of its iShares S&P 500 Value ETF based on assets under management and has nearly double the number of holdings, according to Rosenbluth’s rating.

Looking at performance this year, shares of the iShares Russell 1000 Value ETF were little changed through Wednesday, while the iShares S&P 500 Value ETF was up 0.4% over the same period, according to data. FactSet data.

In contrast, the iShares S&P 500 Growth ETF IVW,
SPDR S&P 500 Growth ETF SPYG Portfolio,
and Vanguard S&P 500 Growth ETF VOOG,
were all down 7.2% this year through Wednesday, according to FactSet data.

Here’s how fund flows for these growth ETFs compared this year to asset flows for the iShares S&P 500 Value ETF, SPDR Portfolio S&P 500 Value ETF, and Vanguard S&P 500 Value ETF VOOV,
according to the memo emailed this week from Rosenbluth.


S&P 500 value ETFs outperformed S&P 500 growth ETFs on Thursday afternoon, although both groups fell as investors assessed new consumer price index data showing a further rise in the American inflation.

To verify: Value stocks have outpaced growth in recent weeks. Is it a fake head?

“It’s been a bad year over the past 12 months for high-growth, innovative companies,” Mark Yusko, managing director and chief investment officer of Morgan Creek Capital Management, said over the phone. “Valuations hit really crazy levels a year ago and they’ve come down.”

As evidence, he pointed to the performance of Cathie Wood’s ARK funds and Morgan Creek’s ETF which owns companies that have used SPACs to go public. This fund, the Morgan Creek – Exos SPAC Originated ETF SPXZ,
is down about 48% in the past 12 months, according to FactSet data, including Thursday afternoon trading.

Morgan Creek Cash Alternative

Now Morgan Creek has a new ETF that invests in SPACs, or special purpose acquisition companies that are “vehicles” for taking companies public, according to Yusko. He said the Morgan Creek – Exos Active SPAC Arbitrage ETF, which began trading this month under the symbol CSH, invests in SPACs and then buys back their shares instead of participating in the deals they aim to make. within two years to take a company public.

“A SPAC is literally a trust filled with treasury bills,” Yusko said. “Our worst outcome is that we get our money back plus interest.”

According to Yusko, the Morgan Creek – Exos Active SPAC Arbitrage ETF earns interest from Treasury bills, but also has upside potential from warrants received by investing in the SPAC structure. “We ran this strategy in a hedge fund for several years,” he said. “In the hedge fund we use leverage, in this fund we don’t.”

Yusko said Morgan Creek – Exos Active SPAC Arbitrage ETF was designed for investors who want an alternative to cash in the face of the challenges of low rates and high inflation. “We’re not trying to beat” the S&P 500 SPX,
he said. “All we’re trying to do is say we can do better than cash,” a money market fund or a certificate of deposit.

What about the cost of the new ETF? The fund has an expense ratio of 1.25%, according to Morgan Creek’s announcement about it earlier this month.

Innovative ETFs

In other new ETFs, Innovator Capital Management this week announced the launch of the Innovator Laddered Allocation Buffer ETF BUFB,
The fund will also allocate each of the company’s 12 monthly buffer U.S. equity ETFs, which “seek to provide a buffer against the first 9% of losses in the SPDR S&P 500 ETF Trust,” as well as “upside performance up to to a ceiling greater than a one-year earnings period.

Innovator has meanwhile filed plans for an ETF that seeks to gain exposure to electric car company Tesla Inc. TSLA,
The Innovator Hedged Tesla ETF, which plans to trade under the symbol TSLH, will invest about 20% of its assets in Tesla-linked options and the rest in Treasury bills, according to a document filed with the Securities and Exchange Commission at the end of January.

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