This has been an interesting week to try and make sense of the investment opportunity set right in front of us.
Perhaps it’s been like this all year, but this week -- the last week of August when we braced for a quiet end to the summer headed into Labor Day -- we’ve witnessed two firsts: a nontech giant cross a unique milestone and a tech giant’s earnings report become a Mainstreet sensation.
Berkshire Hathaway became the first U.S. company to hit $1 trillion in market cap outside of the technology sector. It was big news, as that market cap milestone hasn’t been reached often, and the company is a value favorite, sitting in the financials sector. The stock is up nearly 30% year to date.
Also this week, we saw folks throwing watching parties for Nvidia’s earnings results. That was called the biggest event for markets in recent memory. The stock is up 153% year to date. And it remains the go-to tech growth darling for a bet on the AI and disruption themes -- all powered by Nvidia’s chips.
Two big success stories, two big companies, each sitting on opposing sides: value versus growth.
Is Growth Done for Now?
The battle of styles has been fascinating to watch as growth continues to outperform in 2024. But the gap between the two has narrowed as concerns about historically high valuations meet calls for diversification from high-flying growth names. When we plot a simple comparison of value versus growth through two ETF proxies -- VTV versus VUG -- we see growth has been outperforming value by about 5 percentage points YTD. But that’s a lead that was twice as wide in the last one- and two-year time frames.
But here's the question we keep asking: Is growth done for now? As investors, we're looking for confirmation that all the expectations priced into these growth stocks are built on real feet-on-the-ground and not on optimistic aspirations. Earnings reports, like Nvidia’s, have become ever so important to tell us if we are on the right track, or if we should take a really hard look at diversification.
From this week’s much-anticipated earnings, and all of the commentary that followed, we’ve learned that Nvidia didn’t disappoint. But it also didn’t really impress. The expectations “beat” grows “narrower” with passing quarters in broad terms.
So, here we are, headed into September, which, on average, is seasonally the weakest month for equity market performance in the calendar year, watching value and growth stock darlings suggest compelling but competing stories of where the best opportunity is. And that’s to say nothing about Japan’s recent troubles, the pickup in volatility, the quiet rising demand for bonds, the expected shift in rate policy beginning this month, and a presidential election coming in November. These are uncertain times, that’s for sure.
ETFs to the Rescue
The good news is that if you're a value investor, a growth investor, or a fan of broad diversification, there are ETFs that give you ample exposure to these headline-making stocks as well as a lot more in each category.
Consider four interesting examples of ways to access Berkshire Hathaway in ETFs:
Financial Select Sector SPDR ETF (XLF) -- the catch-all sector play within S&P 500, where BRK sits as the largest holding at 13.5%. The fund is up roughly 20% YTD as financials challenges communications services for best-performing S&P 500 sector in 2024.
Davis Select US Equity ETF (DUSA) -- an actively hand-picked concentrated portfolio of 26 fundamentally strong companies with attractive valuations (versus S&P 500). As the portfolio manager says about the fund: “The companies of Davis Select U.S. Equity ETF have grown at a similar rate to the companies in the index, yet are 37% less expensive.” Financials represent about 39% of the portfolio sector allocation, and BRK is the largest holding at about 10% (versus 1.7% in the S&P 500). DUSA is up more than 15% this year.
Invesco S&P 500 Enhanced Value ETF (SPVU) -- the fund owns 100 stocks from S&P 500 with the best value-for-fundamentals metrics. BRK is the second largest holding in a portfolio led by sectors such as financials and energy. The fund is up nearly 14% this year.
Technology Select Sector SPDR (XLK) - the catch-all S&P 500 sector play where Nvidia is the largest holding at 21%. Technology has lagged the S&P 500 so far in 2024 by about 3 percentage points, and is up 14% YTD.
Van Eck Semiconductor ETF (SMH) -- this is the industry-specific play focused on chip designers and makers. Nvidia is the largest holding at 22% in a portfolio with about 25 stocks. The fund is up almost 38% year-to-date.
American Century Focused Dynamic Growth (FDG) -- the fund is an active concentrated portfolio of about 75 growth stocks focusing on names with durable competitive advantages as well as early-stage growers. Nvidia is about 15% of the mix and the fund is up about 26% so far this year.
Grizzle Growth ETF (DARP) -- this fund captures global disruptive companies leading in earnings/revenue growth relative to peers that are also trading at a reasonable price. From a theme exposure, AI and digitalization represent about 74% of stock picks, with Nvidia top holding at about 20%. But it’s a portfolio that also includes things like uranium, gold, and bitcoin. DARP is up about 15% this year.
