Value stocks have fallen to a seven-month low in comparison to growth stocks, trailing by over 20% year-to-date. This comes as AI-powered technology continues to push equities in the technology sector up.
On Thursday, the ratio between the iShares Russell 1000 Value ETF IWD and the iShares Russell 1000 Growth ETF IWF fell to its lowest levels since the end of January 2022, highlighting a continued underperformance of value companies relative to growth companies.
In 2022, the relative strength gauge of value vs. growth stocks soared to a staggering 33%. This was driven by massive sell-offs of growth-tech shares following the Federal Reserve’s aggressive rate hikes. At the same time, the value segment of the market enjoyed a boost from the excellent performance of energy stocks.
Although value stocks have since lost virtually all of their relative gains compared to their growth counterparts, they remain remarkably cheap in the long term, with the IWD/IWF ratio still trading more than 60% lower than its highs in September 2008, following the collapse of Lehman Brothers.
Charts Depict Value’s 2022 Victory and 60% Lower Value Than Growth Since 2007
The Energy Select Sector SPDR Fund XLE, Utilities Select Sector SPDR Fund XLU, Financial Select Sector SPDR Fund XLF, and Real Estate Select Sector SPDR Fund XLRE contributed to the decline in the value-invested ETF.
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The value segment is significantly underweight in technology, consumer discretionary, and communication services. In contrast, the Technology Select Sector SPDR Fund XLK, Consumer Discretionary Select Sector SPDR Fund XLY, and Communication Services Select Sector SPDR Fund XLC have boosted the performance of the growth-related ETF.
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Growth has been driven up by and contributed alone to the ETF’s performance in 2023 by Apple Inc AAPL, Microsoft Corp. MSFT, NVIDIA Corp. NVDA, and Alphabet Inc. GOOG GOOGL as AI-related stocks rally strongly, benefiting the growth universe of the market.
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Meta Platforms Inc META was the primary stock contributor for the value ETF in 2023. However, despite the excellent 110% return this year, it only contributed 1.3ppt to the IWD’s performance, given its modest 2.5% weight in the portfolio.
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Pfizer, Inc. PFE, Johnson & Johnson JNJ, Chevron Corporation CVX, and Bank of America Corp. BAC were the primary negative contributors to the performance of value in 2023.
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