You’ve Never Heard of This 1 ETF, and It Keeps Crushing the SPY

There’s an ETF that has been trouncing the S&P 500’s gains in the past year by an extremely large margin. The iShares MSCI USA Value Factor ETF (BATS:VLUE | VLUE Price Prediction) has gained 64% in the past year, comes with a 1.8% dividend yield, and an expense ratio of just 0.15%. The SPY has taken 5 years to gain 71.5%.

Will VLUE gain another 64% in the next year? Probably not. But I do think it has what it takes to keep outperforming the S&P 500 for at least the medium term, as value stocks are yet to fully catch up. Moreover, VLUE isn’t what you think it is. It’s very interesting how the holdings are structured and what it considers “value”. The holdings range from hypergrowth tech to oversold retail. Let’s take a look.

What makes the iShares MSCI USA Value Factor ETF special

The first thing you’ll notice about this ETF is that the top 3 holdings are all tech. Its top holding is Micron (NASDAQ:MU) with an 8.88% weight, followed by Cisco (NASDAQ:CSCO) at 5.32%, and Intel (NASDAQ:INTC) at 5.07%. This could give you the impression that this is a tech ETF with a “value” branding, but that’s not the case. It does hold genuine value stocks down the line, and its top 10 holdings only make up 39.12% of all holdings.

But how come MU, CSCO, and INTC are there?

Well, not all value stocks have to be beaten-down names that are limping. VLUE selects U.S. large and mid-cap stocks using three equally weighted signals of “good value” from the parent MSCI USA Index. For this ETF, a stock looks cheap if it scores well on measures such as the price relative to estimated future earnings, which is basically forward PE based on analyst consensus estimates, book value, and enterprise value relative to the operating cash flow.

I believe this makes VLUE a really good ETF because it gives you exposure to underrated tech stocks. For example, Micron trades at less than 8 times forward earnings due to fear, even though there’s no memory crash in sight.

Value stocks are outperforming everything else

Wall Street’s mood has shifted greatly in the past few months towards businesses that have durable profitability and growth. You won’t see a tech stock with loose AI connections trading at double-digit valuations anymore unless the income statements are solid.

Value stocks indeed have solid income statements relative to their stock prices, so the market is in the midst of correcting their valuations.

What’s happening right now barely registers against the trend favoring growth. This has played out the same way twice before when growth got irrationally exuberant, value staged a comeback, and then growth reasserted itself once the fog cleared. Value is yet to stage a full comeback, so VLUE can keep outperforming through 2026 and beyond.

VLUE is a backdoor beneficiary of AI

You don’t have to be bearish on AI to be bullish on value. Lots of AI stocks like Micron are trading well below their fair prices just because the market fears what might happen to them if the worst-case scenario happens. The issue is that the worst-case scenario is either not going to happen or there’s a long time until it can potentially happen. Many have been dooming since 2023, and the market has only gone up since. AI didn’t turn out to be a flash in the pan.

Over half of all data centers are either delayed or cancelled due to the components running out of supply. This wouldn’t happen if demand is cooling, and the delay could also add time to the AI rally.

This ETF has a 36% weight on technology stocks. Almost all of these are cheap tech stocks that have good growth, fundamentals, and low multiples. Since this is a passive ETF, there’s no emotion involved once they start winning. VLUE rebalances quarterly and automatically takes profits on tech stocks that rally out of the value territory. If even these tech stocks crash, VLUE has 64% of its portfolio cushioning against that.

VLUE’s performance in the past year will still scare some people away, but I do have one final metric to point out. The PE ratio of this ETF is still at 18 times. This is 10x lower than the SPY, so VLUE needs to gain a lot more to close the gap.