One sure sign of investor over-optimism is when you start hearing bombastic declarations from some of the industry’s biggest names. For example, we saw Jim Paulson’s statement a few months ago that “the bull market could continue forever”. Common sense should tell us that this won’t be the case, but the headlines seem to continue. This week, it was noted value investor David Einhorn’s turn at the mic. He questioned whether or not value investing is a “the bull market could continue forever” going forward. Granted, the value style of investing has been out of favor for some time as growth names such as Amazon (AMZN), Facebook (FB) and Tesla (TSLA) continue plowing to new highs. But does that mean it’s no longer viable at all?
Spoiler alert: Value investing is NOT dead.
It’s easy to think why it might be though. Growth stocks tend to outperform when the economy is good or recovering. People are willing to accept more risk in the hopes of greater returns. We’ve had nine straight years of positive returns in the equities markets with barely a 10% correction along the way. Interest rates and volatility are low. All the pieces are in place for growth stocks to do well.
But that won’t be the case forever. Inevitably, the markets will drop again. Those growth names which have done so well over the past several years could be the first pins to drop if the economy starts to slow. Investors suddenly won’t be so willing to pay rich premiums on hot tech names. Value stocks may appear boring, but they also tend to be more conservative, pay higher dividends and have some downside protection built in. Those characteristics become attractive in less certain environments. We may not be in one of those right now, but we will at some point again.
Here are your four ETFs to watch in the coming week (note: it’s purely coincidental that they all happen to be iShares ETFs).
iShares U.S. Technology ETF (IYW)