Value vs. Momentum

November 11, 20192 Comments

Money seems to be moving into value, and away from momentum. You’ll recall my last blog where I noted that the Russell 2000 small capped index (IWM) was on the verge of popping. The IWM ETF can represent stocks that offer some level of “value” – mainly when markets have focused on large capped stocks. But what about “true” value stocks–including the large capped arena?

How do they compare to the momentum stocks – like the technology and growth stocks – which have dominated over much of the bull market? Let’s have a look!

Value

You can see on the iShares VLUE (US Value stocks) ETF has been in the early stages of a breakout move.

In fact, the S&P 500 has been entirely influenced by value stocks of late. Check out that breakout on the iShares S&P 500 value stock ETF. This is impressive indeed.

Comparably, the iShares MSCI International Value ETF (IWFV-LSE) is also breaking out – albeit early stage. Note that I chose to use this London Stock Exchange (LSE) listed ETF chart over the US-exchange listed chart. That’s because the USD fell over the past couple of months against most currencies. That move made the US listed International or European stocks outperform their actual stock performance when prices were converted to the USD. By looking at the IWFV chart, we get to see how the stocks did with less of the USD’s decline “helping out” on the relative performance. Make sense?

 

Momentum

Now let’s take a look at the momentum stocks. Recall that right up until early 2018 – this has been a momentum market. Here in North America – it was all about the tech giants and a few other select big names. Now, they are (largely) treading water -per this blog that I wrote a couple of weeks ago

The iShares US momentum ETF (MTUM-US) is moving sideways against a rising market.

The iShares MSCI International momentum ETF (IWFM-LSE) – is also showing weakness. While still contained within its uptrend, it is rounding down while most world indices are picking up some speed. This implies weakness within the recent momentum players vs. the broader markets.  Again, I used the iShares product trading on the LSE. In this way, we compare apples to apples. Much like the US momentum ETF, international markets are not rewarding momentum stocks lately.

 

Conclusion

Perhaps we should be tearing the value-based ETF’s apart for our stock ideas. If the market is starting to rotate into low PE, PB, etc types of value plays, who are we to argue?

As always, I don’t have all the answers, and I encourage you to comment with your own thoughts below. I hope this blog stimulated some exploration on your side!

 

Keith at the Orlando Moneyshow

Here is a link to my presentation at the moneyshow entitled Discovering New Stock Breakout Candidates

Date: February 7, 2020, 5:30 pm – 6:15 pm at the Orlando Omni resort.

Here is a 1-minute video describing the talk.

 

2 Comments

  • A little confused as to how to play value.
    Value on a p/e, p/b basis is usually found in slower growth sectors (consumer staples, utilities, traditional banks)
    Or in companies that have tasked a big hit (Walgreens, bed bath and beyond, energy).
    So by choosing value, al I choosing slow growth and risky, yet to find a floor, cigar butt names.

    I hope you can explain to me the appeal of value and what I may be missing?

    Reply
    • Lance–you are entirely correct. “Value” is like saying “fast”. How fast is fast? I race bicycles. As an age-class racer of 57 years old – I race in the men’s 55-60 yrs age category. In that category, I try to be fast. When I race against 30 year old leading age-category guys, I get smoked. So, I am fast, or slow. Depends on the comparatives. Same with value. What is value? Darned good question. In my world, something that has been overlooked (not necessarily reflected in perpetually low-PE stocks like utility stocks) –example – GE may be a value right now (I am not making any kind of a recommendation here). Its possibly cheap, relatively speaking, and it may, just may, be turning around. That potential, if it is turning the corner, is possibly not yet priced fully for the potential of that turnaround. As such, somebody could argue it as a value stock. 5 years ago it was a growth stock.
      Fast, good value, good looking, and delicious tasting….all of these descriptions are subject to interpretation!

      Reply

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