When something is so cheap in relative terms, you have to pay attention. That is the case of Value compared to Growth What is each one? How to take this opportunity?
To understand what we are talking about, the two universes must first differentiate. Growth gathers at Companies that grow at accelerated rates and reinvest their profits (when they have them) to expand. They are concentrated in the sector technological and associated with innovation and disruption. Here we find giants like Nvidia, Amazon, goal and Tesla.
Instead, Value groups more mature, stable and more constant cash flow. They do not promise to change the world, but pay dividends, generate solid profits and quote low valuation multiples. This group is usually represented by consumer, health and industrial companies, such as Coca-Cola, Johnson & Johnson and Caterpillar. They are typically called companies “Defensive.”
Let’s look at the ratio between Value and Growth:
The conclusion is overwhelming: Value was never so cheap in relation to Growth Like now. And in the markets, the extremes do not last forever.
How to take this opportunity?
No one has the glass ball to know what will happen this year. But if the market is still volatile and uncertainty from Trump’s rates, there is a play that can work very well: bet on a relative trace. What is this? A relative trace is to bet that an asset will beat another, regardless of whether the market goes up or down. It is not sought that one rises, just that it does better than the other. It is a competition between two.
Technically, this can be done by buying the ETF IWD (VALUE) and selling the ETF IWF (Growth).
What is winning with this?
- It doesn’t matter if the market goes up or down. If Value makes it better than Growth, he wins the same.
- One protects itself from the market management. He is betting on a relationship, not to an absolute level.
Let’s look at both of them in recent months:
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After having marked minimal at the end of last year, the IWD/IWF relationship has risen more than 12% so far this year. The rotation towards Value sectors is evident.
In this context, that has enough logic. Because while Technological They have demanding valuations and a lot of expectation on top, the most stable and cheap companies can begin to gain ground.
We do not know what will happen to Trump. What we do know is that there is a lot of uncertainty and there will be volatility. And in that tonic, this relative trade makes a lot of sense.
Finally, I want to invite you to download a report that I prepared for this year. There you will find 7 concrete ideas with really surprising alternatives, which present a great risk-back relationship. You can download it in this link: https://clubdeinversores.com/pdf-7-ideas-de-inversion-para-2025/
Note: The material contained in this note should not be interpreted under any point of view as an investment council or recommendation for the purchase or sale of a particular asset. This content has only educational ends and represents only an opinion of the author. In all cases it is advisable to advise with a professional before investing.
Source: Ambito
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