What Makes Value ETFs A Winner In The 9-Year Bull Market?

The equity bull market turned nine this month. The markets began soaring on Mar 9, 2009, the day U.S. stocks finally stopped sliding after the worst market rout since the Great Depression. Nine years ago, on Mar 6, the S&P 500 touched a bear market nadir of 666.79, only to stage an astral rally. Notably, the ongoing run is the second-longest ever.

People usually associate a bull market with growth factors. The U.S. economy grew 2.3% in 2017 against a 2.8% decline in 2009. Growth stocks and ETFs are assumed to deliver stellar performance in such a scenario.

But surprisingly several value ETFs have emerged winners in the nine-year bull market. Of the top ten unleveraged ETF winners, three are actually ‘pure value’ funds from Guggenheim, which even surpassed sizzling Internet ETFs like PowerShares NASDAQ Internet ETF PNQI (read: 4 Sector ETFs That Crushed S&P 500 in 9-Year Bull Run).

Let’s find out how.

Inside Value ETFs’ Outperformance

The last nine years have been marked by several ups and downs. Though the Fed supported the market – which was reeling under the pressure of the subprime mortgage crisis – with its ultra-policy monetary policy and QE rollouts, global growth worries persisted. The Eurozone debt crisis was a major deterrent during this period.

Apart from this, the Taper Tantrum in the United States in 2013, China’s soft-landing issues, deflationary fears in Japan and the oil price massacre continued to pose threats to the market rally at regular intervals. In short, the rally was hardly frictionless.

Probably this is why the current bull market is also called the ‘Most-Hated’ bull market ever. Most market watchers appear ‘cautiously optimistic’ about the Wall Street rally, if we go by an article published on Wall Street Journal.

Though the S&P 500 has almost ‘quadrupled’ in value since March 2009, skepticism persists. Actually, people who have seen the dot.com bubble burst in 2001 and survived the financial crisis in 2007-2008 probably have now become more cautious and less-speculative.

Investors now fear overvaluations amid market complacency. They are also worried about global central bank movements as easy money was the key thing that drove Wall Street this high. Charles Schwab (NYSE:SCHW), which takes care of more than $3 trillion in retail investments, noted late last year that investors are not pouring their entire savings into the stock market.

This is where the popularity of value ETFs lies. Value funds offer exposure to a wide variety of stocks with value characteristics, such as low P/B, low P/S and low P/E ratios. The perception is that the lower the ratio, the higher will be the value of the stock.

The simple logic is that a stock’s current market price does not justify (is not equivalent to) its higher earnings, sales or book value. These stocks tend to be better bets in an uncertain environment (read: Buffett Backs Great Rotation: 4 Value Stocks & ETFs to Buy).

7 Value ETFs That Breezed Past SPY (NYSE:SPY) in 9-Year Bull Market

These value funds have beaten SPDR S&P 500 ETF (AX:SPY) (up 310.9%) and SPDR Dow Jones Industrial Average ETF (V:DIA) (up 288.8%) during this timeframe. Among the growth ETFs, SPDR S&P 600 Small Cap Growth (NYSE:SLYG) ETF SLYG became the topper with about 467.6% returns, followed by Guggenheim S&P SmallCap 600 Pure Growth ETF RZG (up 451.9%).

Guggenheim S&P 500 Pure Value ETF RPV – Up 674.1%

Guggenheim S&P SmallCap 600 PureVal ETF RZV – Up 637.4%

Guggenheim S&P MidCap 400 Pure Val ETF RFV – Up 569.75%

WisdomTree MidCap Dividend ETF DON – Up 460.4%

iShares Morningstar Small-Cap Value (AX:JKL) – Up 458.9%

iShares Morningstar Mid-Cap Value JKI – Up 458.4%

WisdomTree SmallCap Dividend ETF (MNE:DES) – Up 453.2%

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