Saturday, May 05, 2007

Value or Growth?

We looked at different ETFs to invest in December 2006 starting with this article. Let us revisit the large value vs growth segments to see how things are faring in 2007.

We looked at the large cap segment in December 2006 and analyzed a couple of ETFs. In this segment, we will look at large cap segment again and compare a few ETFs available in this space.

From vanguard, we have VTV for large value, VV for SP500 index and VUG for large cap growth.

From iShares, we have IVE for large value, IVV for SP500 index and IVW for large growth.

Comparing the Vanguard ETFs, the value fund VTV has done better than both SP500 and the growth funds. A chart showing the relative performances can be found here.

Comparing iShares ETFs, the value and SP500 index have done better than the growth segment which includes technology stars like Microsoft and Google. A chart that shows the differences is noted along with.

In 2006, value segment far outperformed both the growth and SP500 indices. Although the outperformance isnt as obvious in 2007, let us look at the P/E ratios where available to compare the funds.

VUG has a P/E ratio of 21.1 and P/B ratio of about 3.9. VV has P/E ratio of 16.9 and P/B ratio of 2.8. VTV has a P/E ratio of 14.2 and a P/B ratio of 2.2. These numbers were updated as of 3/30/2007.

From iShares, IVE has a P/E of 18.84 and a P/B of about 3.01. IVW has a P/E of 21.4 and a P/B of about 4.93. IVV has a P/E of 20 and P/B of 3.93. These numbers were updated as of 3/30/2007.

Comparatively, value funds carry less risk because of the lower P/E numbers. One thing to note though is that the value fund is dominated by oil and gas companies who have done relatively well thus far into the year. The growth funds haven't done as well as SP500 or the value funds historically. This year the earnings for the technology companies was expected to accelerate so it will be interesting to see how the rest of the year plays out. Value is definitely the defensive play and growth is more of a speculative play for 2007.

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