Growth and value represent two fundamental approaches to portfolio management, and the balance of leadership between them continues to shift. This week’s Equity Leaders Weekly examines those approaches through the iShares S&P 500 Value ETF (IVE) and the iShares S&P 500 Growth ETF (IVW), exploring their differences and the recent divergence in their performance.
IVE tracks the S&P 500 Value Index, made up of companies that screen as lower-priced on measures such as price-to-earnings, price-to-book and price-to-sales. IVW tracks the S&P 500 Growth Index, providing exposure to companies with stronger growth characteristics. The two differ markedly in sector exposure. IVE carries larger weightings in financials, energy, industrials, health care and consumer staples, while IVW carries larger weightings in technology, communication services and consumer discretionary. IVW is also more concentrated, with NVIDIA alone accounting for close to 14% of the fund.
Over the past year, relative performance has shifted away from large-cap growth and towards value. Historically, several conditions have coincided with periods of value outperformance. Pullbacks in technology and other higher-multiple companies have often been accompanied by relative strength in lower-multiple sectors such as financials, energy and industrials.
Interest rates also help explain the relationship. Growth stocks derive more of their value from earnings expected further into the future, making their valuations more sensitive to changes in the discount rate. Value stocks may therefore be less affected by rising bond yields, although the impact varies across companies and sectors. Extended periods of growth leadership have also, at times, been followed by phases in which the valuation gap between the two styles narrowed.
Over the longer periods examined here, growth has held the performance advantage. Over the past ten years, IVW returned 17.63% against 13.06% for IVE. Over fifteen years, the gap was similar, at 16.02% versus 12.72%.
More recently, that pattern has reversed. Over the past year, IVE returned 17.72% against 7.72% for IVW, and the gap persisted year to date, at 15.19% versus 9.45%. Over the past month, the divergence was sharper still: IVE gained 3.79% while IVW declined 6.51%.
For advisors, these contrasting results keep the relationship between value and growth in focus as markets weigh earnings growth against valuations and the path of interest rates. SIA’s technical readings offer a closer look at how that divergence is developing in each fund.
iShares S&P 500 Value ETF (IVE)
The iShares S&P 500 Value ETF (IVE) offers a broad view of large-cap US value stocks through companies in the S&P 500 that screen as lower-priced relative to earnings, book value and sales. Its emphasis is on valuation, with larger weightings in sectors such as financials, health care, industrials and energy. Its returns reflect company earnings, dividends and broader market conditions.
The attached Point & Figure chart highlights IVE’s recent strength. The fund holds an SIA SMAX Score of 9/10, with a bullish Double Top as its latest chart signal. A strong, extended column of rising X’s illustrates the pace of the advance, with initial resistance identified at $250.12, followed by $276.15.
On a pullback, the 3-box reversal support level is identified at $222.10. Further support lies at $193.35. These levels provide reference points for monitoring the advance and any subsequent reversal.
iShares S&P 500 Growth ETF (IVW)
The iShares S&P 500 Growth ETF (IVW) offers a broad view of large-cap US growth stocks through companies in the S&P 500 that screen strongly on measures such as sales growth, earnings growth and price momentum. Its emphasis is on growth characteristics, with larger weightings in technology, communication services and consumer discretionary. Its returns reflect company earnings, valuations and broader market conditions. Because a small number of large holdings carry significant weight, those companies can have a substantial influence on the fund’s performance.
IVW’s recent Point & Figure chart presents a different picture from IVE’s sustained advance. Over the past half year, the upward progress has become less consistent. IVW still holds a positive SIA SMAX Score of 8/10, with a bullish Double Top as its latest chart signal. However, the chart currently sits in a column of O’s, reflecting a pullback from its recent high.
Initial support is identified in the $126.81 to $124.32 area, followed by $108.23. On the upside, initial resistance sits at the 3-box reversal level of $145.66, closely aligned with the recent high. Above that, a projected resistance level lies at $160.82.
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