With the “magnificent seven” being growth stocks and the primary contributors of large-cap equity gains this year, it’d be reasonable to assume that value stocks and value investing exchange traded funds are offering tepid performances.
That’s not the case across the entire landscape as the S&P 500 Value Index is higher by nearly 11% year-to-date. On the other hand, some deeper, more pure value strategies aren’t doing much of anything this year, but that lethargy could give way to opportunity with assets such as the (RPV ).
RPV, which follows the S&P 500 Pure Value Index, is basically flat since the start of the year, but that’s not an indictment. Investors that have the luxury of time can and arguably should take a long-term view of value investing and funds such as RPV.
“The common explanation is sentiment. What is now unloved will later receive its due. True enough. Value investing certainly does benefit when the unpopular becomes popular. But that is the icing rather than the cake. The happy secret of value investing is that it can succeed even if sentiment remains unchanged,” wrote Morningstar’s Jon Rekenthaler
RPV Methodology Matters
Past performance isn’t a guarantee of future returns. Still, remember that value is a style best deployed over longer holding periods and that RPV’s emphasis on value purity can potentially affect investor outcomes. The ETF actually looks appealing, despite a tepid start to 2023.
Consider the following. The $2.08 billion RPV outperformed the S&P 500, S&P 500 Value Index and the S&P 500 Growth Index by significant margins over the past three years. That’s confirmation RPV did its job and presented investors with a more attractive options over that stretch than bonds.
“The task of the value buyer is more difficult for stocks than for bonds, which in turn means that value investing for equities suffers longer dry spells,” added Rekenthaler. “For example, per Morningstar’s indexes, large-company U.S. growth stocks have thrashed their value counterparts over the trailing five years. This has occurred because profits from the tech giants have outstripped even the lofty forecasts. The growth-stock buyers were right—and, in their skepticism, the value-stock buyers have so far been wrong.”
Home to 83 stocks, RPV can also be credibly added to large/mega-cap growth portfolios. The ETF allocates roughly 80% of its weight to mid- and small-cap equities.
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