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The Right ETF For The Growth/Value Debate

February 15, 2019 10:48 am
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The Right ETF For The Growth/Value Debate

A widely pondered point during the bull market in U.S. stocks was when value stocks would finally start outperforming their growth counterparts.

That was a fair point to ponder, particularly because for much of the past decade, the value factor trailed its growth rival by wide margins.

What Happened

The late 2018 equity market swoon prompted speculation that investors would embrace the more defensive value factor this year. Year-to-date, the S&P 500 Value Index is slightly outperforming the S&P 500 Growth Index with significantly less volatility.

Should that trend prove durable, the newly minted Direxion Russell 1000 Value Over Growth ETF (NYSE:RWVG) could be of use to investors.

Why It's Important

RWVG is part of a broader suite of relative weight exchange traded funds introduced by Direxion last month. Like the other funds in the suite, RWVG is a long/short ETF with a 150 percent long component and 50 percent short position.

RWVG follows the Russell 1000 Value/Growth 150/50 Net Spread Index. That index has its 150 percent long position in the Russell 1000 Value Index and its 50 percent short exposure in the Russell 1000 Growth Index.

RWVG “seeks to provide a vehicle for investors looking to efficiently express a value over growth investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component,” according to Direixon.

What's Next

While growth's out-performance over value has been lengthy, signs are emerging that the gap is narrowing, which could bolster the case for RWVG.

“According to David Mazza, managing director and head of product at Direxion ETFs, the gap between the price-to-sales ratio of growth relative to value has narrowed, which may be good news for value,” said FTSE Russell in a recent note. “However, it actually remains well below the TMT (technology, media & telecommunications) selloff of the early 2000’s and was further compressed in the fourth quarter market selloff, which may bode well for growth.”

Investors looking to make a growth over value bet can consider the Direxion Russell 1000 Growth Over Value ETF (NYSE:RWGV).

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