For years, value investing has felt akin to waiting for a train that keeps getting delayed. The market has rewarded unbridled growth at any price going back to the mid-2010s. But investor sentiment has shifted, and the “growth at any price” regime is cracking under the weight of its own valuations. Earnings from the so-called “Magnificent Seven” have come in strong but have so far failed to impress the Street. The bar is getting higher, and expectations are starting to leave little room for error.
But the value trade is finally starting to show signs of life. The Russell 1000 Value Index has rallied 5% year-to-date, while the Russell 1000 Growth Index is in the red. This marks a reversal from last year – with industrials and health care now among the leadership groups, while technology has dragged the growth index down lately. On the flows front, small cap value ETFs are the second-best asset-gathering category among equity ETFs to start the year – preceded by the usual large cap growth suspects.
Great Rotation for Real This Time?
The fact is, value investors have been burned time and time again. But fresh structural tailwinds – namely, valuation gaps, economic growth and AI ripple effects – are all bolstering the case for value to quietly keep chugging along in 2026.
- Wide valuation dispersion. No matter how you slice it, dispersion is historically wide both at the market and intrasector level. The valuation gap between growth stocks and value stocks is near record levels. Dispersion is especially wide within sectors – which has historically been a precursor to value outperformance, according to Goldman Sachs. And investors are waking up to the fact that they can buy profitable industrial companies, regional banks, and energy producers at a 40% discount to the broader market.
- AI power and plumbing. The AI trade of the last three years may have been all about chips and large language models, but this year, the focus is shifting toward the nuts and bolts of AI deployment. Data centers are desperate for electricity, copper and cooling systems. Boring, unloved value stocks and sectors (like utilities) are now benefiting from growth drivers that make the physical infrastructure behind AI possible. Plus, if AI delivers on its promise, smaller value companies will stand to benefit from adoption and implementation.
- The “reflationary” trade. Strong fiscal stimulus and onshoring efforts are also playing a part. The latest major injection of fiscal stimulus (aka “One Big Beautiful Bill”) flows straight into the heart of the value space – seeping into industrials, materials, and energy.
Active Value ETFs in the Spotlight
Given all the fragmentation and dispersion, more investors are turning to active manager expertise to help them pick out the winners from the tapped-out value traps. Excluding leveraged products, roughly 62% of the 165 value equities ETFs are actively managed. Active value also accounted for 36% of total value ETF flows in December. Meanwhile, active growth funds make up almost the same chunk of the growth ETF space, but only a fifth of total growth ETFs were active heading into 2026.
From a pureplay value standpoint, the Cambria Global Value ETF (GVAL ) has been the best performer – up 12% on a NAV basis in January, followed by the Avantis International Small Cap ETF (AVDV ), which rose 11%. Two more Avantis funds are also off to a strong start – the Avantis U.S. Small Cap Value ETF (AVUV ) and the Avantis U.S. Large Cap Value ETF (AVLV ). Both are up 8% each and seeing solid net inflows in the past month. All three of these funds use a systematic, factor-based approach that bridges the gap between traditional active stock selection and low-cost indexing to focus on low value and high profitability.
T. Rowe Price takes a more discretionary approach with its T. Rowe Price Value ETF (TVAL ). The fund, which has risen 5% year-to-date, uses bottom-up fundamental research to screen for large-cap stocks that have fallen out of favor but show strong recovery potential. It’s been a strong performer in the large-cap value space – up 16% in 2025.
Finally, Capital Group continues to be a big winner in the active value equity arena with its unique multi-manager approach to investments. The Capital Group Dividend Value ETF (CGDV ) brought in $10 billion in net inflows last year and is once again topping the flow charts this year.
Bottom line: While the growth trade was all about dreaming of the future, the value trade of 2026 is more about owning the physical reality of the present. With the rest of the market on sale, value investing in 2026 is less about predicting a dramatic rotation and more about recognizing that dispersion has quietly widened.
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