Value, Emerging Markets Will Continue to Win

By now you're probably tired of predictions for 2007, so I'll spare you my thoughts on where the market is headed this year. However, in the course of conducting our research on exchange-traded funds, we've arrived at a few conclusions that are contrary to the prevailing wisdom.

Value continues to outperform growth. Value stocks have outperformed growth stocks for six consecutive years, about as long as growth predominated in the late 1990s. As a result, many strategists are forecasting an imminent reversal in fortune in favor of growth. But I believe that the excesses of the late 1990s were such that growth stocks are still relatively overvalued.

It's a dirty little secret, but the methodology used in selecting constituents for inclusion in the iShares S&P 500 Growth Index(IVW Quote) and iShares S&P 500 Value Index(IVE Quote) funds isn't particularly good at separating companies with fast earnings growth from those with slow earnings growth. ...