Value Stocks Crush Growth Shares To Shine In 2022
Mike Zaccardi, CFA, CMT | Jun 09, 2022 12:33
This article was written exclusively for Investing.com
- Value is beating growth by 22% in ‘22
- Growth funds, heavy in the Information Technology sector and light in resource-sensitive stocks, remain in a downtrend off their early-year peak
- Traders should eye one key price point to confirm a bullish move in U.S. large-cap value
Value investors are finally basking in the sunshine. After so many years of sharp underperformance, low price-to-earnings and high book-to-market, Buffett favorites are leading this stock market recovery.
A telling chart, below, is the annual performance gap between the U.S. large-cap growth index versus the U.S. large-cap value index. According to data from Portfolio Visualizer, after five consecutive years of growth dominating value, beaten-up value firms outpace growth stocks by a whopping 22% in 2022.
Source: portfoliovisualizer.com
h2 What’s Up with Small-Caps?/h2I like to dig a little deeper to see what small caps are doing. Indeed, small-cap value shares are crushing small-cap growth. Through June 8, the Vanguard Small-Cap Value Index Fund ETF Shares (NYSE:VBR) is down just 6.5% this year while the Vanguard Small-Cap Growth Index Fund ETF Shares (NYSE:VBK) is down a whopping 23%.
h2 Sector Differences Play a Big Role/h2What’s driving the growth/value disconnect in 2022? Check out the sector weights. The small-cap value ETF is just 6% invested in the Information Technology sector. Contrast that to small-cap growth’s 21% weight. Moreover, Energy and Materials have been strong areas over the last several months—VBR has 14% in those hot sectors while VBK’s exposure is virtually nothing. Of course, Financials play a crucial role in all value stocks, and that sector has been rather weak year-to-date.
h2 Small-Cap Value and Small-Cap Growth Sector Weights/h2
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Source: Vanguard
h2 The Technical Take/h2So, what does the future hold for value investors? Is this just a blip on the radar or should we expect more alpha from the industrial-heavy and tech-light market niche?
The technical chart shows a vastly different picture than the down-trending nature of many large-cap growth ETFs. Vanguard's Value Index Fund ETF Shares (NYSE:VTV) is simply in a choppy trading range. VTV has been stuck in the $134 to $152 area for the better part of the last 12 months.
Vanguard Value ETF: A Choppy Mess
Source: Stockcharts.com
Everything is relative in financial markets. A hot mess is better than a downtrend. Bulls want to see VTV climb above $152 before getting too excited. The bears are ready to pounce on a breakdown through the $134 spot. Next support comes into play at the $121-$124 range—the pre-pandemic peak and the early 2021 spike.
As far as an upside target, the $18 range mentioned earlier portends a measured move price objective to $170 on a bullish breakout.
The Bottom Line
Momentum is on the side of the value investors right now. I think that trend persists through the rest of the year.
I want to see VTV climb above $152—I assert that can happen if Financials start to participate in value’s relative strength to growth stocks. Rising rates and skirting a recession could be the fundamental catalysts that will send VTV to new all-time highs in the second half.
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