The scoreboard says value investing is back. One big value fund — the iShares MSCI USA Value Factor ETF, ticker VLUE — is up 43% this year. The S&P 500 is up 10.8%. Time to break out cigars for the bargain hunters? Read the label first. Then read the ingredients.
The rest of the value family had a good-but-normal year. The Vanguard Value ETF is up 16.1%. The S&P 500 Pure Value index is up 13.4%. Emerging markets are up 24.1%. Respectable. Nothing like 43%.
So what is inside the 43% fund? Chips.
How the quirk happened
Value indexes pick stocks by formulas — measures like price-to-book, which compares a stock’s price to the company’s accounting value. When a growth company falls far enough, the formula relabels it “value.”
That is exactly what happened. The value indexes scooped up fallen chip names when they were cheap and unloved. Then the AI trade lifted them to the moon. Intel is a top holding of VLUE. Micron — a memory-chip maker in one of the most boom-bust industries on earth — was nearly a quarter of the fund at midyear.
So VLUE’s 43% is not a triumph of bargain-hunting discipline. It is a leveraged bet on the memory-chip cycle wearing a “value” name tag.
The funds did nothing wrong. They followed their formulas faithfully. The label just stopped describing the contents. That matters most for retirees who reach for “value” expecting stability and income — and instead get the market’s most cyclical corner at maximum weight.
What honest value looked like
The same day’s paper carried the version of value we actually want to own. It just was not on the front page.
PNC Financial raised its quarterly dividend to $2.00 from $1.70 — an 18% increase. Lindsay, an irrigation-equipment maker, nudged its payout to 38 cents from 37. Unglamorous. Measurable. Paid in cash.
A dividend raise is a board of directors putting real money where the label is. A formula can reclassify a stock. It cannot fake a bigger check.
Read the ingredients
First: before buying any fund with “value” in the name, pull its top ten holdings. If one cyclical chip stock is a quarter of the fund, now you know what you are actually buying.
Second: decide what you want value for. If the answer is retirement income and lower drama, the test is cash flow and payout growth. Not a price-to-book screen.
Third: notice the bigger pattern. The AI trade already dominates your index fund. Now it has colonized the value indexes too. Real diversification means owning things AI cannot reclassify — dividend growers, utilities, and short-term Treasuries paying over 4%.
The Capital Wealth Growth Portfolio never asks which factor bucket a stock lands in. It asks three questions. Does the cash flow exist? Is the payout growing? Can the balance sheet defend it in a bad year? That test catches PNC’s raise — and screens out a memory-chip maker at the top of its cycle, whatever an index calls it this quarter.