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Both the $65 billion Vanguard Growth ETF (VUG) and the $10 billion iShares Core S&P U.S. Growth ETF (IUSG) posted their largest outflows on record last month, according to data compiled by Bloomberg. Funds focused on growth lost more than $2.4 billion in August, the most since 2016. Meanwhile, value ETFs attracted $1.9 billion — their best month since March.
High-growth companies such as megacap technology names with solid balance sheets have been among this year’s hottest trades. But their historic rally has fueled some skepticism about further gains amid concern that they may be too expensive relative to so-called value stocks.
“There’s hesitation that the significant outperformance led by a handful of megacap names like Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) can continue to climb much higher,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.
Yet signs of a slow economic recovery from the pandemic-induced recession and a spike in global coronavirus cases may still make a compelling case for growth shares. Those companies beat expectations by a stronger margin and more frequently than their value counterparts in the second-quarter earnings season.
Despite the monthly outflows for the sector, the performance ratio of the iShares Russell 1000 Growth ETF (IWF) hit new highs relative to its value counterpart (IWD), according to a recent report from Bloomberg Intelligence.
To Athanasios Psarofagis, an ETF analyst at Bloomberg Intelligence, there’s reason to believe that investors could still be favoring growth, but through more targeted approaches.
“For sure, growth ETFs will be heavy on tech, but there is also a lot of other stuff, and I just think people only want tech,” said Psarofagis.
Technology ETFs lured $2.1 billion in August, while thematic sector products received $3.2 billion — their best month since 2018. The $143 billion Invesco QQQ Trust Series 1 (QQQ), which tracks the Nasdaq 100 Index, added $2.1 billion last month. Meanwhile, the Ark Innovation ETF (ARKK), whose biggest holding is Tesla (NASDAQ:TSLA) Inc., recently had its largest inflow on record.
©2020 Bloomberg L.P.
