Growth Or Value: Which ETFs Have An Edge Ahead Of Elections?

The battle between growth and value investing has been heating up this month.

Election uncertainty coupled with a sharp decline in technology stocks and a new wave of COVID-19 globally unnerved investors in recent weeks. Additionally, lofty valuation, lack of additional fiscal stimulus package, fight over a Supreme Court nominee to replace Justice Ruth Bader Ginsburg, allegations of money laundering against big banks, concerns over fresh lockdowns measures, and rising U.S.-China tensions added to the chaos.

Wall Street’s growth stocks including Apple (AAPL - Free Report), Google-parent Alphabet (GOOGL - Free Report), Amazon.com (AMZN - Free Report), and Tesla (TSLA - Free Report) bore the brunt of the broad market rout. These were among the biggest winners of the stock market rebound from the lows hit on Mar 23. As such, the tech-heavy Nasdaq Composite index, which primarily comprises growth stocks, has been underperforming this month so far, having lost 9.7% compared with a decline of 7.5% for the S&P 500 and 5.8% for Dow Jones.

In fact, the benchmark entered into a correction territory (down 10% from the latest peak) last week. The drop in these stocks suggests that growth investing has lost steam in the absence of a vaccine and more stimuli. iShares Russell 1000 Growth ETF (IWF - Free Report), which targets the growth segment, plunged 8.4% in a month, compared with a decline of 5.3% for its value counterpart iShares Russell 1000 Value ETF (IWD - Free Report).

Growth Vs. Value

Growth stocks refer to high-quality stocks that are likely to witness revenue and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in higher share prices. As such, growth funds tend to outperform during an uptrend. However, these stocks have comparatively higher P/B, P/S, and P/E ratios and exhibit a higher degree of volatility especially compared to value stocks.

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