When Value ETFs Look a Lot Like Tech

SPEAKER_1 (0:00)

It's time now for our ETF watchlist segment. Joining me right now, Neena Mishra, Director of ETF Research at Zax Investment Research. Thank you so much for being with us. We talk about value versus growth. It's good to see you, and you know, how is it plying out? Value even better than growth lately? Talk about it.

Neena Mishra (0:19)

Yeah, value has done so well this year. In fact, if you look at the Russell 1000 value index, it has surged 23% year to date. And if you compare it to the Russell 1000 growth index, that is up just about 4% this year. So huge outperformance of value. And many investors think that probably value ETFs are, you know, these safe, boring ETFs that have a lot of exposure to banks, energy companies and little exposure to tech. Tech is seen as, you know, growth here segment of the market. And you may be surprised some of these value ETFs have a lot of exposure to information technology stocks, the sector, and some of the hottest stocks in the market.

So maybe take a look at the holdings. If you are looking to diversify away from the AI trade, some of the value ETFs may not be suitable for you.

SPEAKER_1 (1:26)

What's interesting within the value ETFs that you presented to us today, you talked about the Russell 1000 value really doing so well here. And within that, noting Amazon, Apple, Microsoft are in there, right? We didn't originally think of some of those Mag-7 names as value, we thought of them as growth. But a lot of folks on Wall Street started calling some of those Mag-7 names value place. Why do you think that is and is there still opportunity going forward? Because we've already seen the move.

Neena Mishra (1:57)

So, yes, the EDF that you mentioned, the Russell, iShare's Russell 1000 value EDF, take a symbol, is IWD.

And if you look at the top holdings, Amazon, Apple and Microsoft are its top holdings. And it is because different index providers, they define value in different ways. And in case of some of these companies, because earnings have accelerated much more than prices. So their valuations have compressed. And that is why they qualify for these value screens. There's another value EDF, which is very interesting. It is the iShare's MSCI USA Value Factor EDF, that because the symbol is VNUE. And this has surged about 47% year to date. And if you look at the holdings in this EDF, Micron, one of the hottest stocks in the market, that has about 22% rate in the portfolio.

And information technology, that accounts for about 40% of the portfolio. Now, in case of Micron, because earnings have really surged, so it still trades at a very reasonable forward of just about 6.2. And in case of this particular EDF, value is value characteristics. They compare value to peers within the same gig sector. So Micron has become one of the top holdings in this EDF. Another value EDF, which I want to highlight is by Vanguard, Vanguard Morningstar value EDF. The ticker symbol is VTV. And this is the largest and one of the cheapest value EDFs. And this looks more like a traditional value EDF with more exposure to those boarding sectors. And JP Morgan, JP Morgan Chase and Berkshire Hathaway, they are among its top holdings. Micron is also there, but not a big weight.

SPEAKER_1 (4:09)

Look, I mean, when you talked about Micron being 20% plus in a basket, I mean, no money manager would tell you to hold a stock at 20, 25% of your entire portfolio at the same time. It was a good play. It was a great play because the stock was up 517% one year.

So well done. At the same time, something like VTV does spread out and have more diversification with the likes of Berkshire Hathaway, which also has been a great performer overall. And JP Morgan, when you think about people and how they invest in ETFs, what are some of your advice to folks here as they try to balance and have not just tech but also industrials and utilities and you mentioned banks, materials, maybe some of the boring ones. I think that was the word you used. But final thought on your thoughts on how people create their portfolios using ETFs. What have you seen and what's the final takeaway?

Neena Mishra (5:09)

So the main takeaway for looking by looking at these value ETFs is that if you are looking to diversify away from the value trade, look at value ETFs top holdings and the sector exposure, and you may find value ETFs which may provide true diversification away from the value, away from the AI trade and there may be other value ETFs which still have a lot of exposure to IT and the AI trade. So look at the holdings and the sector exposure and then decide which ETF is the best for you.