The two schools of investing, growth versus value, remain the subject of debate among investors. Both growth and value investors are equally passionate about the superiority of one investment style over the other.
Weighing the merits of these two competing investment styles is like choosing between oranges and apples. Both are good for you. You may want both.
Value investors primarily invest in stocks that sell at a discount to the market. These diamonds in the rough bargain companies often have lower P/E ratios and higher dividend yields.
Growth investors invest in stocks that grow faster than the overall stock market (either by revenues or cash flows and profits) and offer little to no dividends.
Growth stocks tend to outperform when the economy performs well (expanding). Growth stocks often outperformed value stocks during the latter (mature) phase of a business cycle or just ahead of an economic recession, at least from a relative perspective.
However, entering a recession or an economic contraction, especially during a severe or prolonged recession, both growth and value stocks decline on an absolute basis.
The two (2) popular ETFs include iShares S&P 500 Value ETF (IVE – 163.51) and iShares S&P 500 Growth ETF (IVW – 70.36). Both share an overlap of S&P 500 sectors and S&P 500 stocks. The primary difference remains the allocations of S&P 500 sectors and the top 10 stock positions.
As of 7/11/23, 78.93% of the total IVE market weight comprised Financials (18.99%), Technology (17.71%), Industrials (12.56%), Consumer Discretionary (10.92%), Communication Services (9.90%), and Healthcare (8.85%).
The top 10 holdings of IVE account for 25.67% of the total market weight of the ETF. They are MSFT (6.05%), META (3.85%), AMZN (3.62%), BRKB (3.57%), JPM (2.51%), WMT (1.26%), CRM (1.26%), CSCO (1.24%), BAC (1.17%) and NFLX (1.14).
Also, as of 7/11/23, the top 6 S&P sectors of IVW account for 84.7% of the overall ETF market cap. The top sectors are Technology (36.66%), Healthcare (16.81%), Consumer Discretionary (10.56%), Communication Services (7.08%), Financials (7.05%), and Energy (6.54%).
The top 10 holdings of IVW account for 45.35% of the total market weight. They are AAPL (13.91%), MSFT (7.17%), NVDA (5.25%), TSLA (3.64%), GOOGL (3.48%), GOOG (3.01%), AMZN (2.64%), UNH (2.16%), XOM (2.14%), and V (1.95%).
Investors should understand the differences between the two investment styles, specifically sector allocations and stock positions. Why? Both investment styles, the S&P Large-Cap 500 Growth Index (IVW) and the S&P 500 Value Index (IVE), are market capitalization-weighted indexes. And as such, the largest S&P sectors and market-cap S&P 500 stocks heavily influence the directional trends of the two investment-style ETFs.
A brief review of the two ETFs shows an overlap between the two investment styles regarding sector concentrations of S&P 500 sectors. Both ETFs have common S&P sectors - Technology, Consumer Discretionary, Financial, Healthcare, and Communication Services.
As expected, IVW or the S&P Growth ETF is heavily concentrated in Technology (36.81%). Surprisingly, IVE, or the S&P Value ETF, is also skewed toward Technology as it has become the second largest sector in the ETF with 17.71% weighting after Financials (18.99%).
The discrepancy between the two ETFs lies within the top ten market-cap weight names. Again, as expected, IVW continues to be weighted toward Technology/Communication/Consumer Discretionary names, as seven of the top ten companies include AAPL, MSFT, NVDA, GOOGL, GOOG, AMZN, and TSLA. Although TSLA and AMZN are consumer discretionary names, many classify them as Technology-driven companies (i.e., Cloud and AI). Again, it is interesting that IVE consists of Technology/Telecom/Consumer Discretionary. Six of the top ten mkt-cap names include MSFT, META, AMZN, CRM, CSCO, and NFLX.
A deeper dive into the two ETFs suggests large-cap investing through IVW or IVE is about investing in large-cap Technology/Telecom/Consumer Discretionary sectors. Also, both have Healthcare as their top 6 sectors, with IVE (8.85%) and IVW (16.81%) weightings.
Whether growth or value-style investing is superior may not matter as much in today’s market environment since both styles have shown weightings and allocations toward a handful of mega-cap Technology/Telecom/Consumer Discretionary S&P stocks.
It comes down to the concentration of the largest sectors in the ETFs and specifically to the largest market-cap weighted names in the SPX Index.
It may change in the future. However, investing in IVE or IVW entails buying the largest S&P 500 Technology, Telecom, and Consumer Discretionary companies.
One final observation. S&P Value ETF (IVE) has broken out above 156/159, completing a 2-year head/shoulders bottom pattern and a 6-month ascending triangle formation on the backdrop of the recent strengths in the mega-cap Technology related names. S&P Growth (IVW) has also rallied sharply but remains halfway from its Nov/Dec 2021 to Oct 2022 decline. Formidable resistance resides at 71-73, coinciding with the 61.8% retracement from Dec 2021-Oct 2022 downturn and the Aug 2022 reaction high.
Will IVW begin to play catch-up to the IVE via a convincing breakout above 71-73?
Has IVW become a “value” call in relationship to IVE?
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