Investment: Many value ETFs are a value trap

This is surprising at first glance because value stocks tend to get through turbulent stock market phases better. Because these are undervalued companies - often with a seemingly boring but solid business model.

At second glance, the development can be easily explained. Because it has begun.

This is due to the design of value indices such as the corresponding variant of the MSCI World. These include stocks whose share price is low in relation to the book value and the expected net profit, as well as their company value in relation to the cash flow generated.

This recently applied to various companies in the field of artificial intelligence (AI). These include the chip manufacturers Micron Technology and Qualcomm from the USA as well as Cisco, which supplies critical network technology and data center connections. The three stocks alone recently had a weight of around 20 percent in the Xtrackers ETF.

These are actually more likely to be growth or momentum stocks because investors here focus on the sales and profit prospects associated with AI and share prices rose rapidly in the first half of the year. However, ETFs are not qualitative, but rule-based - and here the companies mentioned meet the value criteria.

But even the low valuation revealed a certain level of AI skepticism among investors. If they expected that the analysts' profit expectations would come true, the prices would actually have to be higher. Last week, however, the doubts were reinforced by the Democrats' victory in the US midterm elections.

In the USA, data centers could now be built more slowly and AI could be regulated more strictly. This further questions the profit expectations of AI suppliers, so that their prices plummeted accordingly. Micron Technology alone lost more than 20 percent last week. The entire index also fell accordingly.

This threatens investors with a value trap: the shares are cheaply valued because investors doubt profit expectations. At the same time, the price level is still so high that the shares could fall significantly if earnings expectations are lowered.

However, it is also true that the MSCI World Value has benefited from its focus on AI over the course of the year so far. Even after the recent price losses, the corresponding Xtrackers ETF is still up 32 percent, more than twice as strong as classic MSCI World ETFs.

If AI skepticism decreases - which experts believe is quite likely - stocks could also recover. The MSCI World Value would benefit accordingly.

But the crucial point for investors is different: with many classic value ETFs, you are not primarily invested in solid, undervalued intrinsic stocks that reduce fluctuations in your portfolio, but rather in an ETF with cheaply valued stocks that have strong growth and depend heavily on market sentiment. It is therefore crucial that investors deal with the composition of the ETF.