Why value stocks are leading markets again

Geopolitical tensions and the fallout from military conflict in the region are not unprecedented. What is different is how equity markets were trading before the escalation of tensions.

The value factor had come to the fore, as investors had been rotating away from high-priced growth stocks and focusing on tangible cash flows, robust balance sheets, and reasonable valuations.

Now that inflation is spiking, ‘value’ investing is again high in investors’ consideration.

Should the long end of the yield curve remain high, we think the value factor could continue its relative outperformance.

Value investing is an investment strategy that focuses on buying companies that the market may be undervaluing. While this seems an intuitively straightforward path to investment success and history supports that argument, taking the right 'value' approach is important.

Find out how the Value factor may be used with quality and growth factors – here.

Value is back on the Front Page

Over the long term, the relative returns of value and growth companies are negatively correlated. In other words, in the past, when value has outperformed, it probably has coincided with a period in which growth underperformed and vice versa. From the turn of the century, before the GFC, value outperformed growth. However, since the GFC, growth companies, identified as those that generate significant positive sales or earnings, have outperformed value, despite a value resurgence in 2022, as shown in Chart 1.

According to MSCI, individual factors have been shown to outperform during different macroeconomic environments. Value is “pro-cyclical”, meaning that this type of strategy historically outperforms during rising market conditions.

In the past twelve months, however, changes in macroeconomic indicators potentially bode well for a value rotation, and inflation, being driven by supply shocks from the crisis in the Gulf, could propel value’s recent relative outperformance further.

Chart 1: Cumulative performance of MSCI World Value Index relative to MSCI World Growth Index since Jan 2000 (%) 

Source: Bloomberg, MSCI 1 January 2000 to 28 February 2026. The above graph is a comparison of the performance of the MSCI World Value Index and the MSCI World Growth Index. Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude fees and costs associated with investing. You cannot invest in an Index. Past performance is not indicative of future performance of the indices or VLUE. VLUE does not track the MSCI World Value Index.

Inflationary expectations have risen sharply since the US-Iran conflict commenced. A higher inflation environment supports value company valuations, and we think the current upward pressure on long-dated bond yields is likely to remain if the market remains uncertain about growth and inflation. Value typically outperforms in such an environment (Chart 3).

Chart 2 & 3: US 10 year yields are rising and Value versus broad market performance

                                                    

* Low rate cumulative return is 313.9%
Source: Bloomberg, VanEck. Chart 2 as at of 9 March 2026. Chart 3: High rate 1 is 31 December 1999 to 30 June 2011, Low rate is 1 July 2011 to 29 July 2023, High rate 2 is 1 August 2023 to 31 December 2025. Enhanced Value is the MSCI World ex Australia Enhanced Value Top 250 Select Index. Currency in AUD. Past performance is not indicative of future performance.  You cannot invest in an index.

The Value Factor, from the Factor Specialists

The VanEck MSCI International Value ETF (VLUE) tracks the MSCI World ex Australia Enhanced Value Top 250 Select Index (VLUE Index), which we think is the most representative expression of the value factor available on ASX. It does not include small caps, which have diluted the returns of some other value exposures, and with only 250 high-conviction holdings, it avoids the watered-down approach of broader value indices that hold hundreds of stocks with varying degrees of value characteristics. Because it is rules-based, it does not drift from its style.

VLUE offers exposure to 250 international large and mid-cap companies with high value scores determined by MSCI.

HVLU is an Australian-dollar hedged version of VLUE, so you can manage your desired currency exposure.

We launched VLUE as an expansion of our factor suite of ETFs, which at the time included our MSCI International Quality ETF (QUAL).

Factor-based investing involves identifying the dynamics of an investment that drive its return. In recent years, it has become associated with the ‘quant’ factors that active fund managers have used for decades to sort the wheat from the chaff.

Factor-based ETFs, a subset of smart beta, combine the best aspects of active and passive management by tracking indices with defined rules designed to deliver a targeted investment outcome, while retaining transparency, liquidity, and ease of trading for investors. And in Australia, VanEck is the leader in smart beta.

VLUE is one such ETF, and since its inception on ASX in March 2021 it has outperformed, by 821 basis points (to 18 March 2026, source Morningstar) noting as always that past performance is not indicative of future performance.

Table 1: VLUE performance as at 18 March 2026

Source: VanEck, Morningstar, Bloomberg. Results assume immediate reinvestment of all dividends and include management fees but exclude brokerage costs and taxes. Past performance is not indicative of future performance.
VLUE inception date is 8 March 2021, and a copy of the factsheet is here.
The MSCI World ex Australia Index (“MSCI World ex Aus”) is shown for comparison purposes as it is the widely recognised benchmark used to measure the performance of developed market large- and mid-cap companies, weighted by market capitalisation. VLUE’s index measures the performance of 250 international large- and mid-cap companies selected from the MSCI World ex Australia Index with high value scores relative to their peers at rebalance. Exclusions apply for weapons and tobacco. Consequently, VLUE’s index has fewer companies and different country and industry allocations than MSCI World ex Aus. Click here for more details.

Gaining exposure to value

Before we launched VLUE, there had only been one way for everyday investors have been able to gain exposure to a ‘value’ portfolio, high-fee active funds focused on identifying ‘value’ opportunities. Because humans are involved, many of these value managers, worried about a decade of underperformance after the GFC, may have started to style drift by taking on growth companies, or investing down the market capitalisation spectrum and investing in small-sized companies.

Additionally, some ‘value’ companies are cheap for a reason, and these could be ‘value traps’. MSCI analysis found that using forward earnings can help protect against ‘value traps’. Additionally, MSCI found that considering whole-firm valuation measures, such as enterprise value, can reduce concentration in leveraged companies.

Therefore, MSCI developed its Enhanced Value Indices, which apply three valuation ratio descriptors on a sector-relative basis:

• price-to-book value - Ratio of the price to the company’s book value or what is on the balance sheet. The lower the price to book, the cheaper the company;
• price-to-forward earnings - A version of the ratio of price-to-earnings (P/E) that uses forecasted earnings for the P/E calculation. The forward earnings are the weighted average of the consensus of analysts’ predicted earnings. The lower the Forward P/E the cheaper the company.; and
• enterprise value-to-cash flow from operations - The ratio of the entire economic value of a company to the cash it produces. When you divide EV by CFO, you're essentially calculating the number of years it would take to buy the entire business if you were able to use all the company's operating cash flow to buy all the outstanding stock and pay off all the outstanding debt. The lower the ratio the faster a company can pay back the cost of its acquisition, or generate cash to reinvest in its business.

VLUE tracks the MSCI World ex Australia Enhanced Value Top 250 Select Index (VLUE Index). VLUE Index also employs a sector-neutral approach.

VLUE’s sector neutrality has been pivotal to its recent performance. The 2025 value rally was broad-based and sector diversified. VLUE's design meant it participated across the full width of the value rotation, not just in one corner of it. I am able to provide attribution details upon request.

We have written about factor investing, and we have many resources available, including a microsite on value investing – here

We have also discussed blending factors for long term portfolios  - here

Five years ago, investing in international value required patience and a willingness to look different from the crowd. Many had declared value investing dead. It wasn't. VLUE's five-year track record, built through a pandemic, a rate shock, and an AI-driven market, reflects exactly what disciplined value investing looks like.

Looking ahead, if inflation proves persistent, market leadership continues to broaden beyond US mega caps, or global manufacturing conditions improve, we believe the case for VLUE remains as compelling as ever.

Key points of VLUE:

• International companies exhibiting value characteristics

Access a portfolio of international companies that are selected for their high value score relative to sector peers as measured by MSCI based on: (i) price to book value; (ii) price to forward earnings; and (iii) enterprise value to cash flow from operations.  

• Long term focus, capturing value across the market cycle

The index is designed to capture a high level of exposure to value while minimising unintended and unwanted sector bets 

• Diversified across countries, sectors and companies

Offering investors a portfolio of 250 companies across a range of geographies, sectors and economies

HVLU is an Australian-dollar hedged version of VLUE, so you can now also manage your desired currency exposure

Key risks

An investment in our international value ETF carries risks associated with: ASX trading time differences, financial markets generally, individual company management, industry sectors, foreign currency, country or sector concentration, political, regulatory and tax risks, fund operations, liquidity and tracking an index. See the VanEck MSCI International Value ETF PDS and TMD for more details.  

VLUE is likely to be appropriate for a consumer who is seeking capital growth, is intending to use the product as a major, core, minor or satellite allocation within a portfolio, has an investment timeframe of at least 5 years, and has a high risk/return profile.