The narrative for growth stocks continues to face mounting challenges this year on compounding risks. In an environment of spiking economic and market uncertainty, value stocks offer convincing performance and warrant consideration.
The significant number of challenges to growth in the near- and midterm due to the new U.S. tariff regime resulted in sharp drawdowns in early April as U.S. tariffs took effect. Amongst those hit hardest were many of the large growth companies that outperformed in 2024. Should growth constraints continue, valuations could crater further.
In a growth-challenged environment, value stocks may prove particularly attractive. Value stocks often provide exposure to companies with strong business fundamentals. Generally less expensive than their growth peers, value stocks have lower price-to-earnings ratios and trade at discounts compared to their fundamentals. Given the tumultuous nature of 2025 markets, actively managed strategies could prove beneficial for their adaptability and selectiveness.
The T. Rowe Price Value ETF (TVAL ) combines active management and value investing. The strategy seeks long-term capital growth by investing in undervalued companies and trimmed losses compared to the S&P 500 YTD, measured using the SPDR S&P 500 ETF Trust (SPY).
Value stocks are typically companies that may be out of favor for a variety of reasons, but the fund managers look past the surface to find the ones they believe have potential for capital appreciation. The fund may invest across market caps but primarily invests in large-cap stocks.
The management team creates the portfolio using bottom-up analysis of individual securities. This analysis focuses on individual stock performance and metrics but does consider macro trends. The bottom-up analysis measures dividend yield, price/earnings ratios, price/book value ratios, cash flow, and more. The strategy also considers any undervalued assets and restructuring opportunities a company may have.
A focus on value can enhance portfolio diversification, particularly for those portfolios with an overweight to growth stocks. TVAL’s largest sector exposures included financials at 24.87%, health care at 15.33%, and industrials and business services at 14.73% as of March 31, 2025.
TVAL carries an expense ratio of only 0.33%, making it an affordable, actively managed solution for investors seeking equity diversification.
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