As famed value investor closes his fund, market analysts talk how long growth’s dominance may last
Even the top value investors are struggling.
The theme’s longtime underperformance relative to growth has now led famed investor Ted Aronson to close his $10 billion value-focused fund, the latest in a series of hits to the value trade.
Value, tracked in part by the iShares S&P 500 Value ETF (IVE), has lagged growth substantially over the last 10 years. The iShares S&P 500 Growth ETF (IVW) is up some 283% while IVE is up just above 109%.
This year, the IVW has climbed nearly 23% while the IVE is down more than 10%.
Put simply, firms that are shuttering their value strategies are doing so because “they have to stay in business,” Andrew McOrmond, managing director at WallachBeth Capital, told CNBC’s “ETF Edge” on Monday.
“They have their own goals. They’re trying to grow. They just can’t survive year after year not performing and not even getting to beta,” McOrmond said.
As a result, many are realizing that they “can’t leave growth out” in the hunt for alpha, particularly as more and more new investors come into the fold, he said.
“How many younger investors — and I don’t mean kids, I mean people in their late 20s and early 30s — are interested in investing in Chevron and energy names?” McOrmond said. “They’re just not interested in it and I think they’re willing to leave that out.”
“They’re not thinking about balanced performance,” he said. “They’re thinking about what drives their lives and what they believe in, ESG and things like that. And frankly, growth is overweighted in names like that … and value’s overweighted in those older names that don’t drive change.”
ETF Trends and ETF Database CEO Tom Lydon agreed, saying consumers’ increased, coronavirus-driven reliance on tech has made value stocks “that much more unattractive.”
“At one point in time, we’re going to see value pop,” he said in the same “ETF Edge” interview. “The big question is who’s going to be the first one … to start putting their toe in the water first? Frankly, you don’t want to be the first one doing that.”
Paul Dellaquila, president and global head of ETFs at Defiance, didn’t see the value-growth gap closing anytime soon.
“With the pandemic, with this move to more remote working, we’ve had to embrace technology even 10x what we did in 2019,” he said in the same “ETF Edge” interview.
“Everyone’s doing Zoom calls, everyone’s connecting to the internet much more than they did last year,” Dellaquila said. “It’s a very topical time for a Peloton, for Zoom, for these names because we’re living it every single day. I think that has a lot to do with it as well, but I agree with … Andrew and Tom. Eventually, value will have its day. You’ve just got to stay solvent and wait it out to be able to get there.”
IVE and IVW both climbed less than half of 1% on Friday.
