Pure Style ETFs Win In 5-Year Run

Five years after the market bottom, a surprising look at just what ‘value’ and ‘growth’ have meant.

Senior ETF Specialist
Reviewed by: Paul Britt
Edited by: Paul Britt

Five years after the market bottom, a surprising look at just what ‘value’ and ‘growth’ have meant.

The anniversary of the stock market’s trough in March 2009 got me wondering about how style ETFs have performed during the five-year bullish run following the collapse of Lehman Brothers.

After all, with all the talk about smart beta these days, good old value and growth investing seems largely forgotten.

Specifically, I wondered how “plain vanilla” style funds such as the iShares Russell 1000 Value ETF (IWD | A-86) and the iShares Russell 1000 Growth (IWF | A-89) have done in the past half decade. IWD and IWF remain huge and liquid, with assets of more than $20 billion in each fund.

I found two surprises.

The first was that the returns of plain-vanilla value and growth ETFs like IWD and IWF are remarkably similar since the market bottom.

In fact, their respective performances differ so little from each other, and from the broad market, that it raises the question, Why bother?

The Russell 1000 as measured by the iShares Russell 1000 ETF (IWB | A-92) was up 214 percent for the period, while the value play, IWD, and growth play, IWF, led by 1 percentage point and lagged by 2 percentage points, respectively, according to Bloomberg. In context, that’s small potatoes.


It’s the same story with S&P 500-based funds.

The iShares S&P 500 Value ETF (IVE | A-91) beat the 207 percent return of the iShares Core S&P 500 ETF (IVV | A-98) by just 4 percentage points, while the iShares S&P 500 Growth ETF (IVW | A-91) lagged by 4 percentage points.




My point is that the similarity of returns for the period undercuts—or at least raises questions about—the validity of broad-based style investing.

There’s more differentiation when looking at other time periods. But in the context of the remarkable bull market of the past five years, making a style bet wasn’t making much of a bet at all.

The Pure Play

The second surprise was in the magnitude of the performance difference of pure style funds.

To back up, not all style bets are created equal.

Funds like IWD and IWF split the market in half—half value and half growth—so they hold stocks in the middle of the style spectrum too.

In contrast, pure style funds split the style continuum in thirds, so they exclude the stocks at the “core” of the style spectrum. (Please note that the “core” in IVV’s name is unrelated to this concept.)

The effect on performance that this methodology has is nothing short of massive.

For the same five-year period since the market trough in March 2009, the Guggenheim S&P 500 Pure Growth ETF (RPG | A-58) returned 323 percent (versus IVV’s 207 percent) and the Guggenheim S&P 500 Pure Value ETF (RPV | A-65) netted a whopping 517 percent.




I hasten to point out that RPV, the Guggenheim pure value play, got absolutely crushed in 2008. However, it roared back after falling so hard.

RPV’s whipsaw performance is consistent with its extremely high beta to the S&P 500 over the past five years—1.37, to be precise.

By contrast, IVE, the plain-vanilla value play on the S&P 500, has a beta of just 1.06 by comparison. (I came up with that figure based on a regression on IVV using daily Bloomberg net asset value total return data (NAV TR)).

Still, RPV (pure value) and RPG (pure growth) have beaten both the broad market and their plain-vanilla style peers mentioned above since the market peak in October 2007 and since their inceptions in 2006.


RPV and RPG may be too aggressive for many investors as a long-term allocation. But their bold performance profile would serve well as a tactical play or as an overlay for a value or growth tilt.

The plain-vanilla style funds—IWD and IWF for the Russell 1000 and IVE and IVW for the S&P 500—are too tame for tactical or overlay use. They work better as a long-term allocation that takes modest risks relative to the market.

However, I don’t find the performance and construction of these funds compelling, at least on their own. Perhaps a combination of style and pure style would fit the bill, such as IVE and RPV for value and IVW and RPG for growth.

A combo approach would allow investors to dial in how much market risk they can bear while maximizing upside.

Lastly, I found no alpha—no risk-adjusted outperformance—for any of these funds. These are U.S. large-cap equities after all.



At the time this article was written, the author held no positions in the securities mentioned. Contact Paul Britt at [email protected].



Paul Britt, CFA, is a senior analyst in the ETF Analytics group at FactSet, a team that maintains and develops an industry-leading suite of ETF-related data and analytics products. Prior to joining FactSet in April 2015, he was a senior analyst at etf.com, where he performed a similar role, and worked in private placement at Pensco Trust. Paul holds a B.S. from RIT and an M.S. in financial analysis from the University of San Francisco.