Growth vs. Value ETFs: The Debate Rages On

We ended 2008 with a shriveled market in comparison to the robust volume we began with at the start of the year, but at that time it seemed as though formerly distraught investors were hedging their bets by relying on “value” exchange traded funds (ETFs).

There are 10 broad-market “value” ETFs and 10 broad-market “growth” ETFs with Barclay’s iShares, Powershares, and Vanguard being the more prominent fund families, writes Gary Gordon for ETF Expert.

As of Dec. 26, five of 10 “value” ETFs had shown a healthy short-term moving average; whereas, none of the growth ETFs had risen above their 50-day trends. The five noteworthy “value” ETFs were:

• iShares Russell 2000 Value (IWN): down 28.7% in 2008
• iShares MidCap 400 Value (IJJ): down 35.2% in 2008
• iShares S&P Small Cap 600 Value (IJS): down 29.4% in 2008
• PowerShares Dynamic Large Cap Value (PWV): down 27.2% in 2008
• Powershares Dynmic MidCap Value (PWP): down 37.1% in 2008

But how quickly things change - at the end of last week, growth was leading the charge ahead of value, and it has also popped above its 50-day.

Growth is typically thought to lead the stock market out of a recession, but some investors seem to believe that companies won’t be able to grow for another year or two. Old tried and true behaviors show mainstream investors tend to stick with the old, sturdy companies that will keep on growing, even if it is by a slow and steady pace.

The growth vs. value debate is an old one, and the two sides of it don’t seem likely to budge from their positions any time soon. For his part, Robert Arnott, the founder and chairman of Research Affiliates as well as the “father of fundamental indexing,” had predicted that in a recovery, deep value should perform well.

Where do you stand on the issue? Are you in favor of growth or value when the market begins to rebound?

Comments

[Sperry8:]

According to Ken Fisher... value outperforms when the yield curve starts to flatten and growth outperforms when it starts to become steep again. The yield curve is currently steep (300bps) so value should start to outperform. Although you say typically growth leads out of a recession, he feels its not the end of the recession that causes this, but rather the yield curve (us based in the us and global yield curve globally).

Jan 06 09:39 AM