History suggests value stocks will continue to be well positioned in the current economic environment.
The current economic environment is characterized by above-average inflation and widening market breadth. Notably, value stocks have tended to outperform growth stocks during similar environments in the past.
“There are time periods when value stocks perform well. When inflation is declining and market breadth improves is one of those periods. Advisors should ensure they’re not overexposed to growth stocks,” Todd Rosenbluth, head of research at VettaFi, said.
Furthermore, when value stocks have historically outperformed, they rallied twice as often and for twice as long as growth stocks.
Capture Value Stocks with a Multifactor ETF
Multifactor ETFs are a compelling solution for investors who want to add exposure to value stocks. Multifactor ETFs seek to target desired return-enhancing factors and reduce exposure to unrewarded risk exposures.
The Hartford Multifactor US Equity ETF (ROUS ) and the Hartford Multifactor Small Cap ETF (ROSC ) offer multifactor exposure to the U.S. large-cap and small-cap markets, respectively. ROUS and ROSC have recently outpaced category peers while also aiming to reduce volatility by 15% over a complete market cycle.
Over a one-year period trailing August 30, ROUS is up 10.3%. During the same period, the iShares Russell 1000 Value ETF (IWD ), which tracks the benchmark Russell 1000 Value, is up 8.1%.
In the small cap space, multifactor fund ROSC is outpacing the benchmark-tracking iShares Russell 2000 Value ETF (IWN ) by an even larger margin. ROSC is up 6.9% while IWM has gained 1.3%.
Small cap stocks are often overlooked due to being inherently more volatile. However, investors sitting out small-cap exposure are missing out on attractive returns and enhanced diversification. There are some compelling small-cap ETFs on the market that focus on less volatile stocks, such as ROSC, effectively capturing small caps benefits while smoothing out market turbulence.
For more news, information, and analysis, visit the Multifactor Channel.