Just when many investors thought they only needed S&P 500 growth stocks — value stocks are outperforming. ETFs are highlighting the gap between growth and value, which some think can get even wider due to AI.
The SPDR Portfolio S&P 500 Value ETF is up 2.4% this year. That easily tops the 1.3% gain by the S&P 500. But it also absolutely trounces the 0.4% gain by the SPDR Portfolio S&P 500 Growth ETF, says data from S&P Global Market Intelligence and MarketSurge.
The broadening of the S&P 500 to include value stocks largely ignored up until now is potentially an important shift. "Value stocks tend to perform better than growth stocks in a high- or rising-interest-rate environment," said Todd Rosenbluth of TMX Vetta Fi. "If the Federal Reserve keeps rates unchanged in 2025 as some expect, that would be more conducive to value stocks than growth ones."
But Vanguard also surprisingly thinks AI will lift value stocks.
AI Investing: S&P 500 Value Vs. Growth
Great hopes for AI powered much of the gains for S&P 500 growth stocks in the past two years. Tech stocks were the obvious first winners. But now's the time for value stocks to gain from the AI rally too, says Joe Davis, Vanguard's global chief economist.
Value stocks win no matter how AI pans out. If AI proves to be a game-changer for business, its adoption and earnings gains will appear "across various sectors, not just tech," he said.
And if AI fizzles out, "value stocks may outperform growth stocks due to their defensive nature and lower valuations," Davis said. "If AI disappoints, there is a measurable downside to growth stocks and an increased opportunity for value to outperform growth."
Finding A Way To Play Value With ETFs
One value strategy is when ETFs emphasize cheaper stocks within broader indexes, Rosenbluth says.
SPDR Portfolio S&P 500 Value and iShares Russell 1000 Value have more exposure to financials, health care and industrials, he says. They also have less weight in information technology and communication services. And that's a good thing, now. The top "pure" value stocks in the S&P 500 this year are all health care plays: CVS Health, Baxter International and Walgreens Boots Alliance.
Another angle is ETFs that take a "relative" value approach, Rosenbluth says. The iShares MSCI USA Value Factor ETF looks for "value within each of the sectors," he says. That means Cisco Systems and IBM are technology holdings, while AT&T and Verizon Communications are communications services stocks.
Lastly, some ETFs use high dividend yields as a sign of value. The ALPS Sector Dividend Dogs ETF and Vanguard High Dividend Yield follow this method. SDOG owns equal positions in five stocks with the highest dividend yields across 10 sectors. CVS Health is a health care position.
Tilting To Value More Gently
A more subtle way to tilt your portfolio to value is with an equally weighted approach like the Invesco S&P 500 Equal Weight ETF. "This forces you to be more diversified as it owns the same large-cap stocks, (and yet growth winner) Nvidia and (value winner) CVS Health are similar positions," he said.
But Rosenbluth cautions investors that there have been value-stock fake-outs before. The SPDR Portfolio S&P 500 Growth ETF is still up 58.8% in the past five years, topping the 52.2% gain by SPDR Portfolio S&P 500 Value.
"Many times in the last few years, it seemed like a rotation to value from growth would last — and it was short-lived," he said.
How Large Value ETFs Are Doing
| ETF | Symbol | YTD change | Assets (in billions) |
|---|---|---|---|
| Vanguard Value | VTV | 4.1% | $137.6 |
| The Energy Select Sector SPDR Fund | XLE | 4.1% | 33.9 |
| Vanguard Small-Cap Value ETF | VBR | -0.1% | 31.6 |
| iShares MSCI EAFE Value ETF | EFV | 10.2% | 20.9 |
| iShares Select Dividend ETF | DVY | 4.3% | 20.3 |
| Utilities Select Sector SPDR Fund | XLU | 5.4% | 18 |
| Avantis U.S. Small Cap Value | AVUV | -3.7% | 16 |
| Capital Group Dividend Value | CGDV | 4.4% | 14.1 |
| iShares Russell Mid-Cap Value | IWS | 1.1% | 13.7 |
| Dimensional US Marketwide Value | DFUV | 3.1% | 11.7 |
