IVE - IVE: Growth-Oriented Market Could Be Losing Steam Calling In Value ETFs (Technical Analysis)

2023-08-14 15:21:06 ET

Summary

• The U.S. stock market may be due for a small correction as growth securities' first-half momentum shows signs of weakening, leading the market to a critical junction.
• Apple's recent decline could further indicate a possible market reversal, as this symbol of technological growth recently plunged almost 10% in just five days after outperforming in the months prior.
• I rate IVE a Hold, as this ETF could be well-positioned for growth in the event of a market reversal, but lacks directionality and stability at the moment.

The United States stock market remains at what I think is a critical junction as investors evaluate the sustainability of the 2023 bull market. Growth securities outperformed value during the first half of the year, however, this momentum has since dwindled , and I believe the market could be due for at least a small correction. This case appeared most recently in the Apple ( AAPL ) pullback last week, which caused AAPL's price to dip back to levels seen in late May. Though AAPL doesn't speak for the entire economy, this tech juggernaut is to many, the face of growth investing. Therefore, I think this event may indicate a shift away from growth and more toward value before the end of the year. The iShares S&P 500 Value ETF ( IVE ) could therefore be well-positioned for growth in the short-medium term. However, based on my technical analysis, this ETF may generally be lacking directionality at the moment. This makes it difficult to assertively call anything at the moment but also makes this ETF one to watch closely going forward. I rate this ETF a Hold.

Strategy and Holdings Analysis

IVE tracks the S&P 500 Value Index and uses a representative sampling technique. This benchmark consists of securities that are deemed to be underpriced according to such securities' price-to-earnings (P/E) ratios. These same stocks are weighted by market capitalization, which must be at least $5 billion, and are classified as value assets per Morgan Stanley Capital International (MSCI).

This ETF's holdings reside exclusively in the United States but are spread across a variety of sectors with financials, technology, and industrials being the most prominent. These three sectors account for just under half of IVE's sector composition, with not one sector accounting for more than 20% of this fund.

Over a quarter of this ETF's holdings appear in the top 10 out of over 400 total stocks.

This makes IVE somewhat top-heavy, but this ETF's top holdings are also fairly renowned and well-established companies, which could boost investor confidence despite possible concentration risk.

Notable Metrics and Relative Performance Analysis

IVE maintains relatively low expenses, which are roughly 30% lower than that of the median in all ETFs.

When compared to similar value-focused ETFs, IVE is relatively expensive. This aspect still has not detracted from IVE's performance, as it's managed to keep up with its slightly cheaper counterparts so far this year.

This ETF also has attractive risk metrics and high liquidity, making it potentially attractive during times of uncertainty and volatility, like the ones U.S. markets could be in for before the end of the year.

As seen below, IVE fell behind the S&P in March and is yet to catch up.

However, this ETF has still delivered greater results during the past year.

Going back five years, IVE has generally trailed behind the broader market

From the charts above, IVE evidently tends to outperform during certain conditions and then falls behind during others. Last year, for example, overseas conflicts, geopolitical tensions, and rising inflation all caused the market to shift away from growth stocks and towards value, hence this ETF's outperformance going back one year. However, as 2023's big tech rallies and artificial intelligence ((AI)) hype catalyzed growth stocks like AAPL and NVIDIA ( NVDA ), investors began to favor growth over value. This would explain IVE's hindrance earlier this year. As the current growth rally's sustainability gets questioned, investors might want to consider IVE as well as similar alternatives going forward.

Technical Analysis

IVE recently crossed below the 50-day exponential moving average ((EMA)) at a similar time as both lines in the Moving Average Convergence Divergence ((MACD)) crossed below the zero line. The 50-day EMA is the orange line integrated into the price trend seen below. Both measures similarly indicate a short-term general downtrend. This ETF's price still remains above the 200-day EMA (Blue line), a threshold that many investors consider to be critical in determining trends in the medium to long term. That being said, I don't believe any recent price movements to be that considerable.

Looking at both the MACD and the Average Directional Index ((ADX)), the recent price movement has been both erratic and somewhat stagnant.

In the past with this ETF, a bullish crossover (MACD line crosses above the signal line) below the zero line while the price is above the 200-day EMA indicates an uptrend. However, the MACD has been oscillating around the signal line more than ever. This may reflect how investors could be indecisive during this critical junction in the market. This has resulted in both unusual MACD movement and loss of momentum, as seen in the gradually declining ADX.

Conclusion

As the current growth-oriented market may be losing steam after a strong first half, value securities could be well-positioned for growth before the end of 2023 and also into 2024. However, IVE still lacks a clear trend as the market continues to assess the growth and value outlooks for the rest of the year. I rate this ETF a Hold.

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