How Important Is Style?

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To be exact, there are 44 U.S. growth ETFs and 44 U.S. value ETFs that cover small caps, midcaps, large caps or the total market. That compares with 110 U.S. equity ETFs that don't have style designations, so style ETFs make up a little over 44 percent of the U.S. equity offerings (I didn't included leveraged and inverse funds in my tally. With them, I counted 259 U.S. equity funds, 105 of which are focused on style).

The market is pretty significant and, as I said, growing. Russell recently launched not one, but three different types of growth ETFs for investors who want to get a little more granular.

Seeing all of these ETFs, I was curious whether the choice of a growth or value fund really made a difference.


I looked at eight pairs of ETFs that cover the growth and value portions of their respective indexes. Those ETFs are:

  • WisdomTree LargeCap Growth (NYSEArca:ROI)
  • WisdomTree LargeCap Value (NYSEArca:EZY)
  • Vanguard Mega Cap 300 Growth (NYSEArca:MGK)
  • Vanguard Mega Cap 300 Value (NYSEArca:MGV)
  • Schwab U.S. Large-Cap Growth (NYSEArca:SCHG)
  • Schwab U.S. Large-Cap Value (NYSEArca:SCHV)
  • Rydex S&P 500 Pure Growth (NYSEArca:RPG)
  • Rydex S&P 500 Pure Value (NYSEArca:RPV)
  • PowerShares Dynamic Large Cap Growth Portfolio (NYSEArca:PWB)
  • PowerShares Dynamic Large Cap Value Portfolio (NYSEArca:PWV)
  • iShares S&P 500 Growth (NYSEArca:IVW)
  • iShares S&P 500 Value (NYSEArca:IVE)
  • iShares Russell 1000 Growth (NYSEArca:IWF)
  • iShares Russell 1000 Value (NYSEArca:IWD)
  • First Trust Large Cap Growth Opportunities AlphaDEX (NYSEArca:FTC)
  • First Trust Large Cap Value Opportunities AlphaDEX (NYSEArca:FTA)

Over a one-year period, on average, the growth funds outperformed the value funds. The overall returns for the growth funds were clustered around 30 percent, with Rydex's RPG standing out from the pack with returns of about 42 percent in the past year.

Growth vs Value Returns

But when you break it down into the difference in returns between each of the index pairs and look at different time periods, the story changes a little bit.

The table below shows the percentage difference between each issuer's growth and value funds for the time period indicated. The numbers reflect growth relative to value returns.

Again, the actual returns in the past year for all of the growth funds I looked at were clustered around 30 percent, so what you're looking at in the table below is just the difference between each fund sponsor's growth and value ETFs, in percentage terms.

WisdomTree

Vanguard

Schwab

Rydex

PowerShares

iShares S&P

iShares Russell

First Trust

1m

1.78%

3.69%

2.38%

3.94%

3.49%

3.07%

3.11%

3.34%

3m

0.11%

2.87%

1.40%

2.61%

0.70%

3.90%

1.92%

0.82%

6m

-2.16%

1.87%

1.59%

4.21%

1.56%

4.66%

2.92%

2.88%

1y

-5.82%

5.49%

7.56%

14.57%

7.78%

7.33%

7.95%

6.78%

As you can see, the WisdomTree value fund actually outperformed its growth fund over the year. The Rydex Growth fund far outperformed its value fund. Other than those outliers, growth funds outperformed the value funds in a similar fashion for the one-month and one-year time periods. Still, the three-month and six-month return discrepancies are all over the place.

Each index provider has different rules governing the population of its growth and value indexes. Some include "core" stocks in both indexes, thus narrowing the gap between the two. They also all use different selection and weighting methods, which impact returns. Rydex's value and growth funds, in particular, both outperformed the other ETFs in their segments:RPG returned 42 percent and RPV returned 27 percent.

Growth Returns

Over the past year, there's a 6 percent difference between returns of the average growth fund and the average value fund.

Even among the growth funds, there's an 18 percent difference between the highest growth performer (Rydex's RPG) and the lowest growth performer (WisdomTree's ROI).

Similarly, there's 9 percent difference between the highest value performer (WisdomTree's EZY) and the lowest value performer (iShares' IVE).

Value Returns

Long story short-style designations do matter, but your choice of ETF and time period matter more.

Don't forget to check IndexUniverse.com's ETF Data section.

Copyright ® 2011 IndexUniverse LLC . All Rights Reserved.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: FTA , FTC , IVW , IWD , IWF

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