The iShares MSCI USA Value Factor ETF (NYSEARCA: VLUE) has emerged as one of the clearest beneficiaries of the recent shift away from growth-heavy narratives and toward valuation discipline. Over the one-year period ending mid-February 2026, the fund returned 38.25%, dramatically outperforming the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), whose gains were far more muted. In a market increasingly defined by style rotations and macro uncertainty, VLUE’s surge signals a decisive re-rating of value strategies.

Factor Discipline Over Market-Cap Momentum

VLUE tracks the MSCI USA Enhanced Value Index, applying systematic screens for low price-to-book, price-to-earnings, and price-to-sales ratios. Unlike traditional value funds that lean heavily on financials and defensive sectors, VLUE’s methodology has produced a surprising portfolio composition: Information Technology accounts for 35.1% of holdings.

Semiconductor names such as Micron Technology (NASDAQ: MU) and Intel Corporation (NASDAQ: INTC) sit among its largest positions. This tech-heavy tilt challenges the conventional perception of value investing. Rather than focusing on dividend yield or legacy industries, VLUE targets companies where fundamentals appear mispriced relative to earnings power. Its 1.91% yield underscores that this is not an income strategy but a valuation-driven growth-at-a-discount approach.

With $9.6 billion in assets and a competitive 0.15% expense ratio, the ETF offers institutional-grade factor exposure at a fraction of active management costs. For investors wary of single-stock risk but eager to capture value premiums, the structure provides diversification without sacrificing conviction.

Rotation Tailwinds Drive Outperformance

The fund’s recent results reflect a broader market rotation. Through mid-February, VLUE gained 10.52% year-to-date while SPY remained essentially flat. That divergence highlights how quickly capital can pivot when investors begin prioritizing cash flows and balance sheet strength over long-duration growth narratives.

Such rotations often emerge when interest-rate uncertainty increases or when valuations for high-growth stocks become stretched. In both the U.S. and Israel, institutional allocators have shown renewed interest in disciplined valuation strategies as global monetary conditions remain fluid. VLUE’s methodology positions it between pure value ETFs like Vanguard Value ETF (NYSEARCA: VTV) and broad index exposure, capturing undervalued opportunities within sectors that still benefit from structural growth trends.

The key insight is behavioral: when sentiment shifts, factor-based strategies can amplify returns as positioning unwinds. Investors who were underweight value may be forced to rebalance quickly, accelerating performance.

Risks Beneath the Victory Lap

Despite its strong run, VLUE carries identifiable tradeoffs. The 35% technology weighting introduces cyclical volatility, particularly given semiconductor sensitivity to memory pricing and capital expenditure cycles. If the AI investment cycle slows or inventory corrections deepen, returns could moderate.

Additionally, the fund’s 30% annual turnover exceeds that of broad passive indexes, potentially generating tax inefficiencies in taxable accounts. Most importantly, factor timing remains critical. Value strategies historically underperform during prolonged growth-led markets, meaning patience is required when cycles reverse.

Looking ahead, the durability of VLUE’s outperformance will hinge on whether valuation discipline continues to trump momentum-driven growth. Investors should monitor earnings revisions, credit conditions, and sector-level capital flows. If the macro backdrop continues favoring tangible cash flows and earnings resilience, VLUE may remain well positioned — but as always, style leadership is rarely permanent.