Value stocks have never been completely uninvestable, but they are certainly more attractive now than they used to be.
Investors who want to maximize their profits often choose growth stocks to do so. After all, that’s what these tickers are all about.
However, volatile growth stocks aren’t the only way to become a millionaire investor. Many value stocks play that role, whether you choose individual stocks or baskets of stocks in the form of exchange-traded funds (ETFs).
What about Vanguard Value ETF (VTV 0.36%)? Please continue reading. There are important arguments to add to that assessment in the foreseeable future.
Key drivers of growth are losing momentum
It’s an age-old debate. Growth stocks certainly have their moments of sunshine, but they can also crash in response to the slightest sign of trouble. Value stocks tend to be less explosive, but certainly more reliable when economic conditions worsen. Most of them also pay decent dividends. But it’s not very sexy.
There’s also no denying that growth stocks have outperformed value stocks for some time. By the way, since its early 2009 lows, this value ETF’s Growth ETF (NYSEMKT: VUG) has comfortably led the two with a 948% gain, compared to VTV’s (much) more modest 428% gain. It is a rise. Adding reinvested dividends to the mix won’t lift this value fund’s performance to the level of a growth ETF. The company’s performance has been weighed down by the poor performance of some of its large holdings, including Bank of America and Johnson & Johnson.
VTV data by YCharts.
But for billionaire-minded investors, this disparity comes with an important footnote. Growth stocks performed very well for most of this period, largely because interest rates were unusually low during this period. This period also saw several technological changes, such as the proliferation of smartphones and the emergence of artificial intelligence. Both of these are no longer the case and therefore do not have the same bullish effect.
Oh, sure, the federal funds rate hikes in 2022 and 2023 never pushed overall interest rates to historically outrageous levels. They are still coming down. The Fed cut interest rates by 50 basis points just a few weeks ago, suggesting further rate cuts are likely in the foreseeable future.
However, interest rates are still trending well above the near-zero lows seen for most of the period from 2009 to 2021. This certainly gives value stocks a new edge at the expense of growth stocks.
Actually, this time is no different.
In any case, this is one theory, but not one that everyone agrees with. Others point out that companies these days operate largely independent of business cycles, with innovation and circumstances taking the lead. This crowd also believes that growth industries (such as technology) are so intertwined with value industries (such as banking, consumer staples, and utilities) that it is impossible to attribute differences in their performance to stylistic traits. claims.
To be fair, there is some truth to these suggestions.
However, the argument that “this time is different” rarely lasts forever. Long lagging behind, value stocks are well-positioned to once again take the lead for a while, balancing out the back-and-forth that growth and value stocks have had over the years.
Anyway, the numbers speak for themselves. In fact, since 1927, value stocks have outperformed growth stocks by an average of 4.4 percentage points per year, according to a report from investment advisory firm Dimensional.
Please read it again.
The true basis of this modest performance advantage hasn’t permanently changed in the last decade or so either.
Perhaps more importantly for interested investors is the analyst community’s commitment to this idea. Savita Subramanian, head of U.S. equities and quantitative strategy at Bank of America, implores investors to “buy value in large-cap stocks,” simply because “these companies are really being ignored. , and are trading at very low multiples.”
She’s right, but she’s definitely underestimating the situation. Mutual fund companies Vanguard and Dodge & Cox both believe that growth stocks are currently overvalued thanks to their impressive recent performance, while value stocks remain undervalued over long-term norms. They match.
For perspective, Dodge & Cox says that a typical growth stock is currently priced at about 29 times expected earnings per share, while value stocks have a forward price-earnings ratio of 29. It is said to be much lower. Still about 16 — ready to close the gap.
Anyway, process and discipline are key
But the question remains…is the Vanguard Value ETF a millionaire maker? Yes, it is, and perhaps that is the best means of becoming so in the near future.
The overdue shift described above should restore value stocks’ long-term performance and bring it back on par with that of the well-diversified SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the aforementioned Vanguard Growth ETF. Each of these funds performs better than the others at different times. But given enough time, they all have the same ability to make you a millionaire.
The key, of course, is to be disciplined enough to continue to invest regularly in the funds that make the most sense to prioritize your holdings at the moment, and stick with them even when it’s not easy. That’s true. For now, it’s the Vanguard Value ETF.
Be sure to reinvest while owning VTV, especially if your end goal is growth.
