Value-focused ETFs have seen a huge surge in interest — not to mention share prices — over the past six months or so. Despite continued investor interest, however, those price gains are beginning to wane.
Investors probably shouldn’t expect value funds to continue to rally like they did last year, according to Bloomberg:
[E]veryone rejoicing the return of value also is facing a frightening reality: Lately the results haven’t been keeping up with the enthusiasm. Last week, the market-neutral, or long-short, version of the value category, also known as a factor, posted its worst two-day return in more than five years, according to Bloomberg portfolio analytics.
Like any major trend on Wall Street, when too many investors pile into a single asset class or investment vehicle, the prospects for continued outperformance inevitably fall. Value-based funds are particularly cyclical, meaning they go through ebbs and flows more frequently than other factors.
And analysts are getting increasingly skeptical whether value’s big rally is sustainable anymore:
“We’re focused on continuing to see value outperform, but you’re not going to have a clear-cut outperformance and theme like you did last year,” said Abhra Banerji, director of quantitative research at Evercore ISI. “Last week value struggled. It may have gone out too much and people may be asking if it’s time to take chips off the table. ”
If that’s true, then last week’s dump of value fund prices won’t just be an anomaly. It could instead be the start of a major new trend where value funds take a back seat to more growth-oriented vehicles.
Perhaps the most popular value-focused ETF, the Vanguard Dividend Appreciation ETF (NYSE:VIG), was trading at $85.73 per share on Tuesday morning, down $0.42 (-0.49%). Year-to-date, VIG has gained 0.65%, versus a 1.32% rise in the benchmark S&P 500 index during the same period.