Although growth equity stocks outperformed value in 2021, both types of strategies saw returns averaging over 25%, so both had stellar years. But with the conversation about rising rates coming back into the forefront, a correlating narrative centered around value stocks is also returning.
With the Fed looking to raise interest rates as many as three times this year, investors are looking towards value. According to Sandra Testani, vice president of ETF product and strategy for American Century Investments, investor interest in value stocks is directly tied to rising rates.
“What we found is that historically, there’s a relationship between interest rates and style,” Testani said. “Value tends to outperform in periods where rates are rising, while growth tends to outperform in periods where rates are steady or declining.”
Avantis Investors, a $9.2 billion investment offering backed by American Century Investments, has seen its value funds bring in considerable investor capital. In the past 30 days, the five ETFs from Avantis that gained the most in flows — the Avantis U.S. Small Cap Value ETF (AVUV), the Avantis International Equity ETF (AVDE), the Avantis International Small Cap Value ETF (AVDV), the Avantis U.S. Large Cap Value ETF (AVLV), and the Avantis U.S. Equity ETF (AVUS) — were value funds, each bringing in between $102 million and $192 million over the course of the month.
AVUV is an actively managed ETF that seeks long-term capital appreciation by investing primarily in U.S. small-cap companies. It is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.
Meanwhile, AVDE identifies securities with expected high returns based on market prices and other company information. The fund primarily invests in a diverse group of companies of all market capitalizations across non-U.S. developed market countries, sectors, and industries, emphasizing investment in companies believed to have higher expected returns.
AVDV mainly invests in a broad group of non-U.S. small-cap value companies believed to have higher expected returns across developed market countries, sectors, and industries. AVLV invests in a range of U.S. large-cap companies and seeks companies that are trading at low valuations with higher profitability ratios. AVUS invests primarily in a diverse group of U.S. companies of all market capitalizations, across sectors and industries, emphasizing investment in companies believed to have higher expected returns.
Testani noted that value strategies were also seeing inflows last year, saying, “The flows into value outpaced flows into growth throughout 2021, so that isn’t necessarily a new phenomenon,” but adding that the data suggested that flows into value “could continue into 2022.”
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