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Why Value ETFs Are Outperforming Growth

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With increased optimism on swift economic recovery backed by the wider rollout of COVID-19 vaccines and more stimulus, value stocks have been outperforming the growth ones. Sam Hendel of Levin Easterly Partners told Yahoo Finance last month that the value stocks have seen the largest outperformance in 2021 versus growth in the last 20 years.

Surging Treasury yields and the resultant inflationary pressure have been weighing on investors’ sentiment lately and compelled them to rotate out of the high-growth areas into the low-valued stocks. Investors should note that the value stocks were badly beaten down by the coronavirus pandemic and are thus attractively valued at the current levels (read: 5 ETFs to Ride On the Rotation to Cyclical Sectors).

With continued progress in more vaccines, rapid vaccination rollout and the prospect of further U.S. stimulus, the economy is on the mend with swift recovery expectation. The combination of factors will result in increased industrial activity and pickup in consumer demand, thereby lifting value stocks. Improvement in corporate earnings growth also bodes well for these stocks.

Further, value stocks seek to capitalize on the inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with the growth and blend counterparts. Additionally, value stocks are less susceptible to trending markets and their dividend payouts offer safety in times of market turbulence (read: US Dividends Jump to Record High Amid Pandemic: ETFs to Tap).

Given this, investors seeking to tap the current trends could consider value ETFs like iShares Focused Value Factor ETF (FOVL - Free Report) , Invesco S&P SmallCap 600 Pure Value ETF (RZV - Free Report) , Avantis U.S. Small Cap Value ETF (AVUV - Free Report) , Roundhill Acquirers Deep Value ETF (DEEP - Free Report) and Invesco S&P 500 Pure Value ETF (RPV - Free Report) . These funds offer broad exposure to the stock market and are expected to continue performing well in the coming weeks.

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