On March 12, U.S. stock prices faced downward pressure amid concerns over President Donald Trump's policies impacting economic growth. In response, investors are shifting funds towards value funds that are seen as more resilient in economic downturns compared to growth stocks.
Data from Lipper showed that U.S. growth exchange-traded funds (ETFs) saw $3.6 billion in outflows this month, while U.S. value ETFs attracted $1.8 billion in inflows.
Value funds, mainly comprised of stocks from sectors like banking, energy, and utilities, serve as a cushion against market volatility by investing in stable, undervalued stocks that are less susceptible to economic fluctuations.
Investors are drawn to these characteristics as Trump's trade disputes with key countries escalate market volatility, raising concerns about inflation and economic growth.
Initially this year, growth sectors rode high on the momentum from last year, propelled by optimism in technology and artificial intelligence.
However, recent market trends have seen a selloff in tech stocks, including the Magnificent Seven (Mag 7), as investors pivot away from high-growth positions amid worries about overvaluation and economic conditions.
Goldman Sachs noted a shift in the U.S. market from cyclical to defensive stocks, reflecting a decrease in growth rate expectations compared to economists' forecasts, with upcoming data and policy changes likely to drive further adjustments in investor strategies.
As per LSEG Lipper data, U.S. value stocks currently present a forward price-to-earnings ratio of 17.6, indicating a 41% discount compared to growth stocks' P/E ratio of 30.1. This discount remains higher than the 10-year average of 37.5%.
Leading the inflows into U.S. value funds are the AAM S&P 500 High Dividend Value ETF, Acquirers Small and Micro Deep Value ETF, and American Century Focused Large Cap Value ETF, welcoming significant investments of $603 million, $513 million, and $388 million, respectively.
Among growth funds, the iShares Russell Top 200 Growth Index Fund, iShares S&P 500 Growth ETF, and Invesco NASDAQ 100 ETF saw outflows of $763 million, $548 million, and $418 million, respectively.
Chris Marangi, co-chief investment officer of value funds at Gabelli Funds, highlighted the appeal of value stocks, especially in small to mid-cap companies that stand to benefit more from deregulation and tax cuts and are less exposed to negative impacts like tariffs.
Furthermore, Marangi suggested a changing landscape by stating, "Also, it may no longer be the case that the Mag 7 is a safe haven."