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Growth ETFs Outshine Value in 1H, Predictions for 2H
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After underperforming in the first quarter, growth investing has made a strong comeback and is outshining value. This is especially true as iShares S&P 500 Growth ETF (IVW - Free Report) , which targets the growth segment, jumped nearly 19% this year, compared with a gain of about 10% for its value counterpart iShares S&P 500 Value ETF (IVE - Free Report) .
In fact, Fidelity Blue Chip Growth ETF (FBCG - Free Report) stole the show, gaining 38.1%, followed by gains of 36.3% for Invesco QQQ Trust (QQQ - Free Report) , 34% for Vanguard Mega Cap Growth ETF (MGK - Free Report) , 32% for T. Rowe Price Blue Chip Growth ETF (TCHP - Free Report) and 32% for Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) . These funds offer diversified exposure to a number of growth sectors and are not confined to a particular segment (read: Value ETF Investing to Shine as a Slowdown Looms Large).
The blend of robust economic recovery, continued low-interest rates, technological innovation, positive investor sentiment, and strong corporate earnings resulted in growth stocks outshining value stocks in the first half. Here are the reasons for outperformance:
Economic Recovery: As economies worldwide continued to rebound from the COVID-19 pandemic, growth sectors like technology, consumer discretionary, and clean energy thrived. The increasing demand for digital products and services, coupled with consumers' heightened spending, drove up the revenues and earnings of many growth-oriented companies.
Continued Low Interest Rates: Despite the fact that the Federal Reserve has raised rates this year, interest rates have largely remained low in the first half. Low rates are generally favorable for growth stocks as they reduce the cost of borrowing, often needed to finance their expansion. They also lower discount rates that can lead to higher valuations (read: Unlocking ETF Strategies for Sustained Investment Success).
Innovation and Market Adoption: Certain high-growth industries, particularly in the technology sector, saw significant advancements and a wider market adoption. This progress often leads to increased revenues and growth prospects, supporting higher valuations. In particular, the artificial intelligence (AI) frenzy has resulted in an astounding rally in technology stocks.
Investor Sentiment: Investors' appetite for risk remained high in the first half, with many willing to pay a premium for companies with high growth potential. This sentiment is a boon for growth stocks, which often have high future earnings expectations baked into their prices.
Corporate Earnings: Many growth companies reported strong earnings in the first half, exceeding analysts' expectations. This strong earnings performance contributed to positive momentum for these stocks, supporting their outperformance.
Looking Ahead: Predictions for 2H23
As we move into the second half, value ETFs might take charge as the Fed has signaled more interest rate increases this year. Historically, value stocks tend to perform better in a rising interest rate environment because they are typically less volatile and have more predictable cash flows.
According to Powell, "Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go." Following last week’s two-day FOMC meeting, officials indicated there could be two more quarter-percentage-point increases this year. The Fed’s benchmark borrowing rate is currently pegged in a range of 5-5.25% (read: Fed to Hike Rates Further: ETFs to Buy).
Additionally, global growth slowdown, trade tensions and the ongoing regulatory scrutiny of big tech could bring market volatility in the months ahead, making value investing favorable. According to the World Bank, 2023 is likely to be one of the slowest growth years for advanced economies in the last five decades, as two-thirds of developing economies will see lower growth than in 2022.
However, growth investing will continue to make its way higher as global economies bounce back from the pandemic. Industries like travel, leisure, and consumer discretionary, which experienced substantial setbacks during the pandemic, are poised to capitalize on pent-up demand. This resurgence will favor growth stocks in the second half of the year.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.
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Growth ETFs Outshine Value in 1H, Predictions for 2H
After underperforming in the first quarter, growth investing has made a strong comeback and is outshining value. This is especially true as iShares S&P 500 Growth ETF (IVW - Free Report) , which targets the growth segment, jumped nearly 19% this year, compared with a gain of about 10% for its value counterpart iShares S&P 500 Value ETF (IVE - Free Report) .
In fact, Fidelity Blue Chip Growth ETF (FBCG - Free Report) stole the show, gaining 38.1%, followed by gains of 36.3% for Invesco QQQ Trust (QQQ - Free Report) , 34% for Vanguard Mega Cap Growth ETF (MGK - Free Report) , 32% for T. Rowe Price Blue Chip Growth ETF (TCHP - Free Report) and 32% for Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) . These funds offer diversified exposure to a number of growth sectors and are not confined to a particular segment (read: Value ETF Investing to Shine as a Slowdown Looms Large).
The blend of robust economic recovery, continued low-interest rates, technological innovation, positive investor sentiment, and strong corporate earnings resulted in growth stocks outshining value stocks in the first half. Here are the reasons for outperformance:
Economic Recovery: As economies worldwide continued to rebound from the COVID-19 pandemic, growth sectors like technology, consumer discretionary, and clean energy thrived. The increasing demand for digital products and services, coupled with consumers' heightened spending, drove up the revenues and earnings of many growth-oriented companies.
Continued Low Interest Rates: Despite the fact that the Federal Reserve has raised rates this year, interest rates have largely remained low in the first half. Low rates are generally favorable for growth stocks as they reduce the cost of borrowing, often needed to finance their expansion. They also lower discount rates that can lead to higher valuations (read: Unlocking ETF Strategies for Sustained Investment Success).
Innovation and Market Adoption: Certain high-growth industries, particularly in the technology sector, saw significant advancements and a wider market adoption. This progress often leads to increased revenues and growth prospects, supporting higher valuations. In particular, the artificial intelligence (AI) frenzy has resulted in an astounding rally in technology stocks.
Investor Sentiment: Investors' appetite for risk remained high in the first half, with many willing to pay a premium for companies with high growth potential. This sentiment is a boon for growth stocks, which often have high future earnings expectations baked into their prices.
Corporate Earnings: Many growth companies reported strong earnings in the first half, exceeding analysts' expectations. This strong earnings performance contributed to positive momentum for these stocks, supporting their outperformance.
Looking Ahead: Predictions for 2H23
As we move into the second half, value ETFs might take charge as the Fed has signaled more interest rate increases this year. Historically, value stocks tend to perform better in a rising interest rate environment because they are typically less volatile and have more predictable cash flows.
According to Powell, "Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go." Following last week’s two-day FOMC meeting, officials indicated there could be two more quarter-percentage-point increases this year. The Fed’s benchmark borrowing rate is currently pegged in a range of 5-5.25% (read: Fed to Hike Rates Further: ETFs to Buy).
Additionally, global growth slowdown, trade tensions and the ongoing regulatory scrutiny of big tech could bring market volatility in the months ahead, making value investing favorable. According to the World Bank, 2023 is likely to be one of the slowest growth years for advanced economies in the last five decades, as two-thirds of developing economies will see lower growth than in 2022.
However, growth investing will continue to make its way higher as global economies bounce back from the pandemic. Industries like travel, leisure, and consumer discretionary, which experienced substantial setbacks during the pandemic, are poised to capitalize on pent-up demand. This resurgence will favor growth stocks in the second half of the year.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.