Communication services and technology growth sectors are powering broader equity indexes higher this year. But cyclical sectors are also making strong contributions. In fact, large-cap consumer discretionary and financial services stocks are beating the S&P 500 by wide margins this year.
Those strong showings have some experts optimistic regarding the potential for cyclical stocks to continue trending higher in 2025. Investors looking to make that bet have a variety of ETFs from which to choose. And the WisdomTree U.S. Value Fund (WTV ) is ranking as a potential standout.
As its name implies, WTV is a value ETF. And that designation often implies the fund in question features large exposure to cyclical sectors. WTV obliges, as financial services, consumer discretionary, and industrial stocks combine for 54% of the fund’s roster. That confirms its leverage to cyclicals, which could be beneficial to investors in 2025.
WTV the Place to Be for Cyclical Rally
Although “value” is in its title, WTV’s point of emphasis is shareholder yield, not just inexpensive stocks. Shareholder yield can be a better spin on value investing. That’s because it comprises buybacks, debt reduction. and dividends. Traditional value investing uses standard valuation metrics to identify cheap equities.
The differences in those methodologies are tangible. That’s because WTV is beating the S&P 500 Value Index by a margin of nearly 2-to-1 since the start of 2024. That gap may not be as wide next year. However, WTV could again have the upper hand over traditional value funds. That’s because the economic backdrop could prove supportive of cyclical sectors.
“The recent rotation into cyclicals has occurred against a background of improving economic expectations,” noted BlackRock. “Investors have followed economists in belatedly recognizing the extraordinary resilience of the U.S. economy. According to Bloomberg a consensus of economic forecasts now expects real 2024 gross domestic product (GDP) of 2.7%. In January the consensus was 1.2% and as recently as August it was still slightly above 2%.”
'Cyclical Stocks Look More Reasonable'
Regarding value, there is some to be had in cyclical sectors. That indicates there’s a value case for WTV as 2025 beckons. In other words, investors don’t have to pay up to access WTV’s benefits.
“The other argument for cyclical stocks is their relative cheapness. To be clear, with the S&P 500 Index trading at 22x next year’s earnings, apart from energy there are few absolute bargains. That said, compared to the technology sector and related names, cyclical stocks look more reasonable,” added BlackRock.
This article was prepared as part of WisdomTree’s general paid sponsorship of VettaFi | ETF Trends. This specific content within and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees, or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional.
WisdomTree is an independent company, unaffiliated with VettaFi | ETF Trends. WisdomTree has not been involved with the preparation of the content supplied by VettaFi | ETF Trends. It does not guarantee, or assume any responsibility for its content.
For more news, information, and analysis, visit the Modern Alpha Channel.
