Oith growth stocks capturing the spotlight in January, and for all the wrong reasons, investors are rightly eyeing greener pastures.
One obvious destination is value stocks, and some of the related exchange-traded funds are proving to be valuable hiding places as growth stocks tumble. For example, the Invesco S&P 500 Pure Value ETF (RPV) has been stable since the beginning of the year while the S&P 500 is down more than 9%.
Generally speaking, 2021 has been good for stock valuations. For example, the RPV jumped 34.2%, easily outperforming the S&P 500 and the S&P 500 Value Index. Opponents say Value’s resurgence in 2021 was the result of an economic recovery fueled by accommodative monetary policy and that last year was the first time in more than a decade that Value looked compelling relative to the growth.
However, evidence, including RPV’s impressive benchmark start to 2022, is emerging that value stocks could be in for a long period of growth.
“Value stocks are more sensitive to the strength of demand in the economy than growth stocks, so they surged as the economy rebounded rapidly in response to Washington’s trillions of dollars in fiscal and monetary stimulus and the lifting of stay-at-home orders Growth stocks, which fell less when the economy stagnated in the spring of 2020, have been weaker,” reports Jacob Sonenshine for Barron’s.
Adding to the case for RPV is that the earnings of value companies are growing at a rate comparable to or greater than that of growth companies.
“Just look at analyst estimates. The expected earnings growth of value companies is catching up with that of growth companies. According to RBC data, the average long-term earnings-per-share growth estimate for the Russell 1000 Value Index is now just over four percentage points lower than that of its benchmark peer. growth. That’s down from a nine-point differential seen in mid-2020, before the economic recovery really kicked in,” Barron’s notes.
There are other short-term factors that could kick VPN into high gear this year. The fund allocates 31.75% of its weighting to financials, which positions it well in a rising interest rate environment. Additionally, RPV devotes more than 17% of its weight to the consumer staples and energy sectors, two groups that benefit from rising inflation. The S&P 500 allocates less than 10% of its weighting to these sectors.
Conclusion: 2022 could be a good time to be a value investor.
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