RFV - RFV: Deterioration In Growth Characteristics Soft Quality Warrant Caution

2024-03-21 01:45:33 ET

Summary

• With an 8.1% earnings yield, Invesco S&P MidCap 400 Pure Value ETF should definitely appeal to zealous value investors.
• They should be prepared for the repercussions of its quality- and growth-agnostic strategy.
• Since December 2023, RFV's quality and growth characteristics have deteriorated, while the ETF itself has been languishing despite the market marching higher.
• While I do not anticipate RFV to decline steeply, I believe that its factor mix and especially depressing developments on the growth front warrant caution, so the Hold rating is maintained.

I have been following the Invesco S&P MidCap 400 Pure Value ETF ( RFV ) since January 2023, with both of my previous notes having a mostly skeptical tone. In December 2023, when I discussed the impact of its underlying index's annual rebalancing on the portfolio's factor exposures, I emphasized that RFV was "a suboptimal fund from a quality standpoint." Overall, I arrived at the conclusion that its value-heavy factor mix was a weak choice in a new market environment, with investors rotating to stocks that stood to benefit from the capital scarcity era ending gradually, thanks to the interest rate cuts on the horizon already. Since then, RFV has underperformed the S&P 500 index grossly....

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