Are Value ETFs the New AI Trade?

Value stocks are significantly outperforming their growth counterparts this year. The Russell 1000 Value Index has returned roughly 23% year to date, compared with just about 4% for the Russell 1000 Growth Index. Meanwhile, the iShares MSCI USA Value Factor ETF (VLUE) has surged more than 47% year to date.

Some investors have favored attractively valued stocks to reduce their exposure to mega-cap concentration amid heightened market volatility. However, value stocks have also benefited significantly from the AI trade.

While investors traditionally look to growth and tech-focused funds for AI exposure, value ETFs have increasingly become direct and indirect beneficiaries of the AI investment cycle.

Multiples for some tech giants at the forefront of AI deployment have compressed as earnings have accelerated, allowing these legacy tech leaders to be picked up by value screens.

Traditionally value-oriented sectors such as industrials, utilities, and materials have also benefited from rising AI spending.

VLUE tracks the MSCI USA Enhanced Value Index, which scores each security for value characteristics relative to peers within the same GICS sector. Micron (MU) is the fund’s largest position, with about a 22% weight, while information technology accounts for roughly 41% of the portfolio.

The iShares Russell 1000 Value ETF (IWD) tracks the Russell 1000 Value Index. At its rebalance in late June, the index added Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT) as its top holdings. The information technology sector currently accounts for about 20% of the index.

The Vanguard Morningstar Value ETF (VTV) holds large-cap US stocks that display strong value characteristics. JPMorgan Chase (JPM), Micron, and Berkshire Hathaway (BRK.B) are its top holdings.

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This article originally published on Zacks Investment Research (zacks.com).

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