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DON’T LOOK NOW, but value is beating growth—just not here in the U.S.
From May 31 through Sept. 29, iShares MSCI EAFE Value ETF (symbol: EFV), which invests in developed foreign markets, is up 5.6%, while iShares MSCI EAFE Growth ETF (EFG) is down 6.5%. That brings the year-to-date performance of the two funds to 9.6% for the iShares value fund and 4% for the iShares growth fund. Meanwhile, the style-neutral iShares MSCI EAFE ETF (EFA) is up 6.9% in 2023. U.S. stocks, as measured by iShares Core S&P 500 ETF (IVV), are up 13.1% for the year, even after their recent selloff.
I’m partial to Dimensional International Value ETF (DFIV), which yields 4.3% and is up 10.7% on the year. The fund’s small-cap sibling, Dimensional International Small Cap Value ETF (DISV), is also doing well in relative terms, up 9.5% year to date, well ahead of the style-neutral iShares MSCI EAFE Small-Cap ETF (SCZ), which is up 1.7% in 2023.
Japan is among the better-performing foreign markets. The iShares MSCI Japan Value ETF (EWJV) is up 18.5% year to date, despite a weak yen, compared with an 11.5% gain for iShares MSCI Japan ETF (EWJ). My little bet on Japan small-cap value continues to do well, though small-caps are lagging large caps in Japan. WisdomTree Japan SmallCap Dividend Fund (DFJ) is up 11.3% year to date, much better than the broad foreign benchmark and the foreign small-cap ETF. I also own stakes in some of the other funds mentioned here.
What about developing countries? Dimensional Emerging Markets Value ETF (DFEV) is up 7.8% year to date, compared with 2.9% for iShares Core MSCI Emerging Markets ETF (IEMG) and 2% for Vanguard FTSE Emerging Markets ETF (VWO), both of which diversify across growth and value stocks. All have heavy stakes in poorly performing China.
I get my emerging markets exposure through the style-neutral iShares MSCI Emerging Markets ex China ETF (EMXC). But despite its avoidance of increasingly authoritarian China, it’s up just 5.7% year to date, still behind Dimensional’s emerging markets value ETF, with its 7.8% gain.
Even in the U.S., value appears to be attempting a comeback versus growth—at least in relative terms. Vanguard Value ETF (VTV) is down 2.9% since July 17, versus a 6.4% decline for Vanguard Growth ETF (VUG).
But for the year to date through September, it’s still an embarrassing showing for U.S. value stocks. Vanguard Value ETF is flat, while Vanguard Growth ETF is up 28.4%. The picture is a little better among U.S. small caps. Vanguard Small-Cap Value ETF (VBR) is up 2.1% in 2023, versus 7.3% for its growth counterpart.
Still, just as those fond of a drink like to say “it’s 5 o’clock somewhere,” it’s good for thirsty value investors to know that cheaper stocks are being rewarded elsewhere in the world. Who knows? Maybe soon it’ll be happy hour for value devotees even here in the land of mega-cap tech stocks.
I’m happy to hear this as this year I decide to make a small tilt toward value in my new 401k, both international and domestic. I have plenty of growth funds, so this could add some balance to my overall performance. Thanks for the update.
I personally don’t see why performance over even a single decade is all that interesting for stocks, let alone less than 1 year. If I backtest any given fund, the start date I use can make it look fantastic or terrible. Take VTSMX (US total market) vs VISVX (US small value) for example (these older Investor Shares funds are used here for their longer return history, but newer Admiral Shares are available today). Since 2014, VTSMX is up 10.32% vs 7.18%. But since 1999, VTSMX is up only 7.33% vs 8.90%. These are the same two funds, and even 10 years of crushing outperformance by VTSMX still puts it in second place behind VISVX. Given this reality, I don’t think performance should be the basis of portfolio construction. My portfolio will hopefully always have an under performing 1/3 of stocks, because I designed it that way; diversification means something is always down. If your entire portfolio (assuming it’s composed entirely of broad index funds) is up all the time, I would seriously question the level of diversification it contains. Otherwise, I don’t think you can gain much insight by caring about returns, and certainly not if using a single year of data.
Unless you analyze each individual company, you have no idea what you own. A value stock is one that meets a specific set of financial criteria based on earnings, cash flow, and book value. A mechanical stock screen against the financials will give you a list of such stocks.
But a screen can’t tell you why a company is trading at a low price. Is the business model sound? Are earnings decreasing every year instead of increasing? Is the management good, or are they steadily running down the company? If you just go by financial screens, you will be buying a lot of companies that really are no good.
I do the value screen for my investment club every month. The list is full of companies that are struggling, as well as sectors that are traditionally slow-growth or no-growth. You’ll see a lot of airlines, a lot of retail, some energy companies that are actually pretty good, and some financials that need to be picked through carefully.
If running a simple screen isn’t enough, why do value index funds outperform the vast majority of actively managed value funds? According to S&P, 91% of large-cap value funds lagged behind their benchmark index over the past 20 years. The failure rate is even higher for mid-cap and small-cap value funds.
I’m with Jonathan. Any grouping of stocks will exhibit similar behaviors in different types of markets. For instance, why do utilities or healthcare (or retail) tend to do better in a lagging economy? Or, why do US stocks seem to rise/fall together (or any country).
There are longer term trends and shorter term trends, but there are definitely trends that the market moves towards.