Investors should consider switching to a more defensive group of stocks as Wall Street digests a dramatic rise in high-growth tech stocks during the first half, according to BTIG. Technical strategist Jonathan Krinsky said in a note to clients Thursday that investors should be prepared for the growth stock rally in the first half to reverse in the coming months, with value-oriented plays potentially taking charge. “As we head into a new quarter, we think the odds of a significant mean reversion in the value vs. growth trade are quite high. 2yr yields are breaking to the highest level since early March, and the value/growth ratio is coming off 52wk lows. This divergence likely resolves with value moving a bit higher and growth moving meaningfully lower,” Krinsky said. “We think much of the reversion comes from growth moving down, but we are open to pockets of value working higher,” Krinsky added. Value is one of the so-called investing factors used by asset managers. There are various ways to define value, but many will include metrics like price-to-book and current earnings multiples relative to history. One of the most popular ways to play value is through low-cost factor funds. The Vanguard Value ETF (VTV) has an expense ratio of 0.04% and has a total return of less than 2% this year, seemingly making it a good fit for BTIG’s conversion trade. The iShares Russell 1000 Value ETF (IWD) has an expense ratio of 0.18% and is up about 4% year to date. Investors looking at factor ETFs should be sure to look at the criteria and holdings to see if they are getting the exposure they want. The iShares S & P 500 Value ETF (IVE) , which has an expense ratio of 0.18%, has larger exposure to Big Tech stocks and is up more than 10% year to date. IVE YTD mountain The IVE has outperformed some of the other large value ETFs in the first half. Those funds have all seen outflows this year, according to FactSet. In fact, the 11 biggest value ETFs have all seen outflows, fitting with Krinsky’s theory that the value theme could be due for a rebound. Two large value funds that have seen inflows are Dimensional’s U.S. Marketwide Value ETF (DFUV) and U.S. Targeted Value ETF (DFAT) . Both of those funds were converted recently to ETFs from mutual funds in recent years have expense ratio of 0.22% and 0.28%, respectively. — CNBC’s Michael Bloom contributed to this report.
