Margin of Safety Meets Market Opportunity: Active Value ETFs Take the Spotlight

It looks like value investors may finally have the last laugh. From tariff uncertainty to rising inflation, the markets have shifted into a state of ambiguity. That has resulted in losses year-to-date and a questioning of growth’s leadership position. With their larger margins of safety and cheaper prices, value has taken off, finally outperforming its growth sisters. The best part is this new value cycle could just be beginning and stick around.

And active ETFs could be the best way to play it.

Thanks to their ability to find deeper values and potentially higher dividends, active management offers plenty for portfolios as the new value cycle begins. That fact is already coming true. For investors, the choice is clear when it comes to value, and that’s to be active with their allocations.

Value Shines

Don’t look now, but a big reversal may be occurring. After what seems like a decade of outperformance, growth investing may finally be on the struggle bus. Tech, the so-called ‘Magnificent Seven’, and consumer discretionary names have all been cast by the wayside, while the stocks of the most-beaten down sectors and perhaps most ‘boring’ have taken the lead. Value is finally beating growth.

So far this year, value stocks have managed to hold their own. Through the April Liberation Day swoon, the S&P 500 Value Index was up by 0.4%. Although it may not seem like a real great return, it isn’t so bad when you consider the S&P 500 Growth Index was showing a 6.5% decline.

The shift is pretty easy to see and understand.

A lot of uncertainty has come into the equation with the Trump Administration’s tariffs and potential for higher inflation due to fiscal woes and import duties. For growth stocks, this has been an issue.

Investors have baked in a lot in terms of future revenue and earnings into the shares of tech and other growth names. Right now, the S&P 500 Growth Index has a forward valuation of about 25×. The Magnificent Seven—which includes names like Apple Inc and Microsoft Corp —can be had for a forward P/E of 28X.

However, the value index can be had for just 18x forward earnings. This is a much larger margin of safety amid the uncertainty than growth names. Additionally, value stocks have something that many growth stocks do not. That’s a larger dividend yield. The Growth Index currently has a yield of just 0.54%. This compares to a yield of 1.94% for value. That extra yield is important in volatile and uncertain markets, as that cash return can help reduce losses and even turn them into gains for the year.

Now Could Be the Time for Active Value

Clearly, there’s value within value stocks in the current environment. And the regime change could be finally working in the style’s favor. However, there is still a lot of uncertainty and daily news about the tariffs and inflation has caused the relationship between the two styles to rapidly flip-flop. Growth’s volatility has increased.

To that end, it may make sense for investors to be a bit more active with their value allocations. The time to index may be gone now that the shift has occurred. And there are plenty of reasons to do just that.

For one thing, opportunity set. According to BlackRock, there are currently 869 constituents in the Russell 1000 Value Index, which includes both large- and mid-cap stocks. This is more than double the number in the Russell 1000 Growth Index. This provides active managers a larger opportunity set to deliver alpha. That’s a huge selling point for active management. Active managers can find true value, play market inefficiencies, and score excess returns. With more opportunity to do just that, they can prove their mettle. ¹

Using Morningstar data, BlackRock shows more than half of active value managers have beaten the Russell 1000 Value Index over the last five years. This compares to just 8% of active growth managers. Moreover, the active value managers have significantly added alpha, averaging 4 basis points’ worth of excess annual returns during that time. In all, those active managers managed to produce an extra 172 basis points’ worth of excess returns over the last five years. This table summarizes the outperformance. ²

Source: BlackRock

With valuations rich and uncertainty growing, the power of active management within the value sector is enhanced. Investors have the ability to grab a higher margin of safety than choosing growth at this time.

Getting Active With the Value

Given these factors and growing uncertainty, value has a place within our allocations. And increasingly, being active should be the way to go to add that allocation. Active ETFs have only enhanced this further. With tax advantages and lower costs, active ETFs can add more alpha generation to the mix.

The best part is that there are now numerous active value ETFs that deliver enhanced returns for investors.

Active Value ETFs

These ETFs were selected based on their exposure to value strategies using active management. They are sorted by their YTD total return, which ranges from -5.8% to 4.5%. They have assets under management between $236M and $15.5B and have expenses of 0.15% to 0.44%. They are currently yielding between 1.1% and 1.9%.

Overall, value has started to take the lead over growth. But there is still some uncertainty and volatility ahead. To that end, going active within the style makes a ton of sense. Thanks to a large opportunity set and the ability to find even more of a margin of safety, active value managers should win out versus growth and indexing this year.

The Bottom Line

Growth has been king for a long while. But now, value is starting to reign supreme. And with better returns and more opportunity, being active could be the best way to win in this style.

¹ BlackRock (November 2024). Why Now May Be An Opportune Time For Active Value?

¹ BlackRock (January 2025). Value stocks: Why you might be underweight and unaware