The Resurgence of Value Investing and the Strategic Case for VLUE

The investment landscape has undergone a profound shift in recent years, with value investing reemerging as a compelling strategy in a market environment marked by divergent regional performances and evolving macroeconomic dynamics. After years of growth stocks dominating headlines, particularly during the AI-driven speculative boom, the tide has turned. Sector-neutral value factor investing-exemplified by the iShares MSCI USA Value Factor ETF (VLUE)-has demonstrated resilience and outperformance, offering a compelling case for investors seeking to recalibrate their portfolios.

The Case for Sector-Neutral Value Investing

Sector-neutral value strategies, which adjust sector exposures to align with broad market weights while prioritizing undervalued stocks, have shown distinct advantages over traditional value approaches. According to a Morningstar study, sector-neutral value indexes, such as the MSCI USA Enhanced Value Index, outperformed their market-cap-weighted counterparts during 2023–2025, despite higher volatility. This edge stems from their focus on valuation metrics like price-to-book and enterprise value-to-cash flow, which emphasize fundamental strength over sector-specific trends. By neutralizing sector biases, these strategies mitigate overexposure to cyclical industries and reduce active risk, making them particularly attractive in a fragmented market.

In contrast, non-sector-neutral value strategies have struggled to replicate this success. Morningstar notes that such strategies often hold stocks with weaker quality characteristics due to sector constraints, diluting their defensive qualities. This highlights a critical advantage of sector-neutral approaches: they avoid unintended sector tilts that can amplify losses during market rotations.

VLUE: A Benchmark for Sector-Neutral Value

The iShares MSCI USA Value Factor ETF (VLUE) has emerged as a standout example of this strategy. Designed to track the MSCI USA Enhanced Value Index, VLUE selects 150 large- and mid-cap U.S. stocks based on a composite of valuation metrics, including price-to-earnings and enterprise value-to-operating cash flow ratios according to analysis. Its quarterly rebalancing ensures alignment with value-focused objectives while maintaining sector neutrality, mirroring the broader market's industry weights.

Performance data underscores VLUE's effectiveness. In 2025 alone, the ETF delivered a total return of 34.03%, significantly outpacing the S&P 500. This outperformance was not an anomaly: over the 3-year period from 2023 to 2025, VLUE's returns consistently exceeded those of traditional value and growth strategies. For instance, in 2024, it posted a 7.26% annual return, reflecting its ability to capitalize on undervalued fundamentals even in a growth-tilted market.

VLUE's success is further bolstered by its cost efficiency and diversification. With an expense ratio of 0.15%, it offers one of the most affordable routes to sector-neutral value exposure. Its portfolio includes a mix of sectors, notably technology, where holdings like Micron Technology and Intel have benefited from cyclical rebounds. Despite this, the fund's sector-neutral design ensures it avoids overconcentration, balancing growth and value dynamics.

Regional Divergence and the Global Value Case

The resurgence of value investing is not confined to the U.S. J.P. Morgan Asset Management's 2025 analysis highlights a stark regional divergence: while U.S. value factors lagged due to AI-driven speculation, international value strategies thrived. This divergence reflects differing macroeconomic conditions, with international markets benefiting from policy normalization and more favorable earnings growth. For U.S. investors, this underscores the importance of diversifying into international equities and alternatives- a trend BlackRock's 2025 Fall Investment Directions emphasizes. Sector-neutral value strategies like VLUE, which avoid regional biases, are well-positioned to capitalize on these global opportunities.

Strategic Implications for Investors

The strategic case for VLUE lies in its ability to address key challenges in today's market. First, it mitigates sector-specific risks by aligning with broad market weights, a critical advantage in an era of rapid industry shifts. Second, its focus on valuation metrics ensures exposure to companies with strong fundamentals, which tend to outperform during periods of market correction. Third, its low-cost structure and liquidity make it accessible to a wide range of investors, from retail to institutional.

However, investors must remain mindful of the strategy's volatility. As Morningstar notes, sector-neutral value indexes exhibit higher volatility than their non-sector-neutral counterparts due to their emphasis on valuation characteristics. This volatility, while a risk, also reflects the strategy's potential for asymmetric returns in a re-rating environment.

Conclusion

The resurgence of value investing is not a fleeting trend but a structural shift driven by macroeconomic normalization and the limitations of growth-centric strategies. Sector-neutral value factor investing, as embodied by VLUE, offers a disciplined, diversified approach to capturing this opportunity. With its proven performance, cost efficiency, and alignment with global market dynamics, VLUE represents a strategic cornerstone for investors seeking to navigate the complexities of the post-2025 investment landscape.