Value Outshines Growth: 5 ETF Winners Over the Past Week

Value investing has gained momentum over the past week, driven by growing optimism regarding rate cuts and weakness in the tech sector. iShares Russell 1000 Value ETF IWD, which targets the value segment, has risen 0.8% over the past week against a loss of 1.6% for its growth counterpart iShares Russell 1000 Growth ETF IWF.

We have highlighted several reasons why value investing has suddenly gathered hype:  

Fears of an AI Bubble Forming

U.S. technology stocks experienced a sharp sell-off in recent sessions, fueled by growing skepticism over the sustainability of the AI boom. A MIT study revealed that 95% of the companies examined have seen no measurable return from their AI investments, raising fresh doubts about the near-term payoff of the technology.

Then, the cautious remarks from OpenAI CEO Sam Altman that AI may be caught in a bubble soured investors' sentiment. The dual news has wiped off $1 trillion from U.S. tech stocks, as reported by Citywire’s Thursday paper.

Market Rotation

Tuesday marked a turning point as value plays thrived and momentum stocks slumped. iShares MSCI USA Value Factor ETF VLUE outperformed the MSCI USA Momentum Factor ETF MTUM by one of the largest margins seen this year, per a MarketWatch article.

As tech stocks faltered, investors shifted toward defensive value-oriented sectors like consumer staples, healthcare and utilities. The shift reflects a broadening rally away from tech to other undervalued sectors. Investors should note that value stocks often perform well during periods of uncertainty, providing a cushion for investors and contributing to the appeal of value stocks at times of heightened market risk or shifting macroeconomic signals. The current macro environment is ruffled by U.S. trade policy and fading AI frenzy (read: Time for a Sector Rotation Away from Tech? ETFs in Focus).

Growing Rate Cut Bets

Market expectations are growing that the Fed will begin cutting interest rates, possibly starting in September, with futures pricing in two 25-bps reductions. Value stocks, often in financials, industrials, energy and consumer staples, benefit more from lower borrowing costs and steady cash flows.

Attractive Valuations

After months of outperformance, growth stocks, especially in tech and AI, now trade at stretched valuations while value stocks in sectors such as healthcare, financials, and industrials are trading at significant discounts, offering a margin of safety.

Buffett's Move to the Healthcare Sector

The healthcare sector drew investor attention, especially after Warren Buffett’s move into UnitedHealth UNH. Buffett’s Berkshire Hathaway purchased $1.57 billion worth of UnitedHealth shares during the second quarter, triggering a broader rally across the sector. Notably, healthcare stocks are trading at their greatest discount in 30 years relative to the broader market (read: Invest Like Warren Buffett With These ETFs).

ETFs to Tap

Investors seeking to tap the current trends could consider value ETFs. We have presented a bunch of those that are at the forefront of the current market rotation and are not confined to a particular sector or industry. These funds are expected to continue performing well in the coming weeks.

Invesco S&P 500 Enhanced Value ETF (SPVU) – Up 2.8%

Invesco S&P 500 Pure Value ETF (RPV) – Up 2.6%

Invesco S&P 500 Pure Value ETF (RZV) – Up 2.4%

Invesco S&P MidCap 400 Pure Value ETF (RFV) – Up 1.9%

Gotham 1000 Value ETF (GVLU) – Up 1.8%
 

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This article originally published on Zacks Investment Research (zacks.com).

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