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Has S&P Growth ETF become a value play?

The two schools of investing, growth versus value, remain the subject of debate among investors. Both growth and value investors are equally enthusiastic 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, and 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 – 162.19) and iShares S&P 500 Growth ETF (IVW – 72.01). 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 11/15/23, 79.47% of the total IVE market weight comprised Financials (19.24%), Technology (18.92%), Industrials (11.96%), Consumer Discretionary (11.13%), Communication Services (10.27%), and Healthcare (7.95%).

The top 10 holdings of IVE account for 27.84% of the total market weight of the ETF. They are MSFT (6.74%), META (4.32%), AMZN (4.10%), BRKB (3.80%), JPM (2.54%), WMT (1.42%), CSCO (1.27%), CRM (1.25%), BAC (1.20%) and NFLX (1.20).

Also, as of 11/15/23, the top 6 S&P sectors of IVW account for 85.39% of the overall ETF market cap. The top sectors are Technology (37.40%), Healthcare (16.33%), Consumer Discretionary (10.48%), Communication Services (7.54%), Financials (7.30%), and Energy (6.34%).

The top 10 holdings of IVW account for 46.87% of the total market weight. They are AAPL (13.34%), MSFT (7.69%), NVDA (5.83%), GOOGL (3.86%), GOOG (3.32%), TSLA (3.24%), AMZN (2.89%), UNH (2.41%), LLY (2.27%), and XOM (2.02%).

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. As such, the largest S&P sectors and market-cap S&P 500 stocks can 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 (37.40%). Surprisingly, IVE, or the S&P Value ETF, is also skewed toward Technology as it is the second largest sector in the ETF with 18.92% weighting after Financials (19.24%).

The difference between the two ETFs lies within the top ten market-cap weight names. Again, as expected, IVW is heavily weighted toward Technology, Communication Services, and 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 investors classify them as Technology-driven companies (i.e., Cloud and AI). Again, it is interesting that IVE also consists of Technology, Communication Services, and Consumer Discretionary. Six of the top ten market-cap names include MSFT, META, AMZN, CSCO, CRM, and NFLX.

A deeper dive into the two ETFs suggests large-cap investing through IVW or IVE consists of large-cap Technology, Communication Services, and Consumer Discretionary sectors. Also, both have Healthcare as their top 6 sectors, with IVE (7.95%) and IVW (16.33%) weightings.


Conclusion:

Whether growth or value-style investing is superior may not matter as much in today’s market environment since both styles have weightings and allocations skewed toward a handful of mega-cap Technology, Communication Services, and Consumer Discretionary S&P stocks.


What differentiates the two ETFs is the concentration of the largest market-cap weighted names, specifically the top 10 stocks.


The concentrations may change in the future. However, investing in IVE or IVW today entails investing in the largest S&P 500 Technology, Communication Services, and Consumer Discretionary companies.


One final observation. The S&P Value ETF (IVE) has broken out above 156-158, completing a 2-year head and shoulders bottom pattern and a 1-year ascending triangle formation in Jun 2023. The recent Jul-Oct 2023 pullback also found critical support at 147.23 or above the 50% retracement (145.80) from the Oct 2022-Jul 2023 rally. The breakout suggests +17.5/33 points or IVE targets at 166-167 (near-term), 175.5 (intermediate-term), and 188-191 (longer-term).


The S&P Growth ETF (IVW) has also rallied sharply and nears pivotal resistance, corresponding to the 71-72.64 (61.8% retracement from Dec 2021-Oct 2022 decline and Jul/Sept 2023 highs). A breakout above 71-72.64 suggests 17.94 points or 77.5-78 (near-term), 83.5 (intermediate-term), and 89-90.5 (longer-term).


Will IVW begin to play catch-up to the IVE via a convincing breakout above 71-72.64?


Has IVW become a “value” play in relationship to IVE?


Source: Chart courtesy of StockCharts.com

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