Value ETFs Shine Amid Lower-Than-Expected Inflation

Impact of Inflation Data

June was marked by positive news on the inflation front. The Consumer Price Index dropped 0.1% from May. The annual inflation rate fell faster than expected, reaching 3%, down from May's 3.3%. This encouraging data had a ripple effect on various market segments. Notably, the Dollar Index experienced a 0.68% decline over the past five days, with a significant drop on Thursday following the good CPI print.

Anticipation of Fed Rate Cuts

Market sentiment is being influenced by the anticipation of rate cuts by the Federal Reserve. The yield on the 10-year U.S. Treasury dropped by 9 basis points, from 4.28% to 4.19%. This shift in expectations has had a noticeable impact on the performance of various ETF categories.

Small Cap and Value ETFs Shine Again

Interestingly, the recent trends have provided a boost to value stocks and small capitalizations. Historically, small-cap stocks are closely tied to the overall macroeconomic health, and they have shown a robust response to the current market conditions. Over the past week, Value ETFs and Small-cap ETFs recorded gains of 3.11% and 4.86%, respectively. Growth ETFs only experienced a slight increase of 0.32% during the same period.

Another example is the notable divergence in performance between small cap and large cap this year. Indeed, the S&P 500 Index has posted a year-to-date yield of +17.73%, compared to a gain of only 5.98% for the Russell 2000 Index over an identical interval. This represents a noteworthy difference of 1,175 bps between these two indices. However, last week, small cap stocks outperformed their large cap counterparts.

A similar trend is also observable between growth and value stocks. The Wilshire 2500 Value Index (W5KVAL) has gained 7.02% since the start of the year, while over the same period, the Wilshire 2500 Growth Index (W5KGRO) has increased by 24.81%. The spread between those two indices reached 1,779 basis points. However, like small cap stocks, value stocks outperformed growth stocks this past week.

Notable ETF Performances

At the individual ETF level, the iShares Core Small-Cap ETF

and the Vanguard Small-Cap Value ETF

VBR

+0.57%

posted impressive weekly gains of 5.30% and 5.09%, respectively. These figures underscore the dynamic nature of the current market and the shifting investor preferences in response to macroeconomic indicators, attempting to ride the next wave higher.

Thinking about adding small-cap ETFs to your portfolio? ETF Central's brand-new comparison tool can help! Dive deep into any ETF and compare key factors like fees (expense ratios), holdings, flows, and past returns to make informed investment decisions.

• Here's a comparison between Small Cap ETFs: IJR and IWM
• Here's a comparison between Small Cap Value ETFs: VBR and IJS

Group Data

Index Data

Funds Specific Data:

IJR

+0.44%

IWM

+0.61%

VBR

+0.57%

SPSM

+0.46%

VTWO

+0.59%

IJS

+0.23%

DES

+0.15%

VIOV

+0.22%

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.