On Wednesday, Nvidia (NVDA) became the second-most valuable company in the world and while that’s just one example, it’s confirmation that investors’ enthusiasm for growth stocks remains high. That’s borne out by the fact that due in large part to the AI boom, growth equities are in the midst of another lengthy run of beating value rivals.
That shouldn’t imply that value should be forsaken. Thanks to the newly minted VanEck Morningstar Wide Moat Value ETF (MVAL), it’s possible for investors to access a basket of value stocks with a trait commonly associated with mega-cap growth fare: wide moats. The exchange traded fund is less than two months, but despite its rookie status, it could become relevant at a time when more market participants are expressing concern about the rich multiples found on the S&P 500.
Designed to be the value-focused offshoot of the famed VanEck Morningstar Wide Moat ETF (MOAT), MVAL focuses on companies with indelible competitive advantages that are also trading at attractive valuations. An alluring combination to be sure. And one that is difficult for many investors to identify on their own, underscoring the utility found with MVAL.
MVAL Could Be Ready for Its Moment
The glamour and returns of large and mega-cap growth stocks are undisputed. But the current environment and what’s to come could be conducive to considering value strategies such as MVAL.
“The performance of growth and value investing can vary significantly under different market conditions. Growth stocks tend to perform well during economic expansions when investors are willing to pay premiums for higher earnings growth,” noted Coulter Regal, VanEck product manager. “Conversely, value stocks often outperform during a market downturn, as they are perceived as safer investments due to their undervaluation.”
That is to say, if a soft economic landing is in the offing, value investing could experience a rebirth. A soft landing implies economic growth is cooling. Such a scenario could also favor defensive sectors, some of which sport value tendencies. That’s true of long-lagging healthcare, which accounts for over 24% of the MVAL portfolio.
Healthcare is in the midst of a surprisingly lengthy run of underperformance. However, MVAL’s wide moat overlay can potentially buffer against some of that disappointment. Why? Because competitive advantages are often held by high-quality companies. And that’s true of the ETF’s healthcare components.
Speaking of sector exposures, those coupled with economic and broad market cycles could be supportive of even modestly increased allocations to value stocks.
“Historically, the success of growth and value investing has been cyclical. There have been periods when growth stocks have significantly outperformed value stocks and vice versa. This cyclical nature suggests that economic, geopolitical, and sector-specific factors can impact the performance of each strategy differently,” concluded Regal.
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