We are seeing performance diverge significantly this year between the S&P and Russell value and growth exchange-traded funds (ETFs).
- For example, the iShares Russell 1000 Growth ETF (IWF) is up 12.5% year to date while its value counterpart, the iShares Russell 1000 Value ETF (IWD), is significantly lagging, up only 5.5%.
- However, those ETFs based on the S&P Indexes show very different results. The iShares S&P 500 Growth ETF (IVW) and the iShares S&P 500 Value ETF (IVE) are both up 8.2%. As a reference, the S&P 500 is up 8.3%.
The performance divergence this year between the S&P and Russell value and growth ETFs can be explained by differences in the timing of the annual rebalancing of constituents.
The S&P ETFs’ rebalance took place last December, which led to significant shifts in sector weights. Conversely, the Russell ETFs’ rebalance is not due to take place until June; thus, any changes in sector weights will lag those of the S&P.
Annual rebalances are done to refresh constituents to reflect the constantly changing markets and ensure a given index remains aligned with a stated objective, such as value or growth. Given the wide dispersion in sector returns in 2022, including the huge declines in valuations for higher-growth names, there were significant changes in the growth and value scores for constituent securities since the S&P’s 2021 rebalance. This resulted in major changes in a number of the sector weights in the S&P value/growth style ETFs.
Among the key changes made in December for the iShares S&P 500 Value ETF are the following:
- After significant underperformance in technology last year, that sector’s weight increased to 16.6% from 10.8% previously.
- Conversely, after significant outperformance last year, the sector weightings for energy, health care, and consumer staples have been dramatically reduced.
These shifts have proved timely, given last year’s underperformers, such as technology, are outperforming by a wide margin year to date. Energy and defensive sectors, where weightings were reduced sharply, are underperforming the broader market considerably so far in 2023.
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Table illustrating performance look back summary of total returns for years 2023 year-to-date, 2022 and 2021 as follows: iShares S&P 500 Value ETF: 2023 YTD:8.2%; 2022: -5.4%; 2021: 24.7% iShares Russell 1000 Value ETF: 2023 YTD:5.5%; 2022: -7.7%; 2021: 24.9% iShares S&P 500 Growth ETF: 2023 YTD:8.2%; 2022: -29.5%; 2021: 31.8% iShares Russell 1000 Growth ETF: 2023 YTD:12.5%; 2022: -18.1%; 2021: 28.7% S&P 500 2023 YTD: 8.3%; 2022: -18.1%; 2021: 28.7%