iShares Russell 1000 Value ETF (IWD)

The value-stock fund was born from a single disciplinary observation: some large companies trade at prices much cheaper than their earnings and cash flows might suggest, and systematically buying the cheap ones has, over long periods, beaten buying the expensive ones. The iShares Russell 1000 Value ETF — ticker IWD — captures that philosophy by holding the five hundred largest U.S. companies ranked as “value” stocks by the Russell methodology.

The origin of the value factor

The Russell 1000 Value Index arose in the 1990s as a response to a growing body of academic research showing that buying cheap stocks — those with low price-to-earnings ratios, low price-to-book ratios, and high dividend yields — had outperformed buying expensive ones over the long term. This was not obvious to conventional market wisdom. In the late 1990s, the technology bubble had made investors hungry for growth and momentum, and the notion that you could just buy whatever was cheapest seemed hopelessly stodgy.

Frank Russell Company (now part of the London Stock Exchange Group) created a formal index definition: take the Russell 1000, sort every company by value metrics, and define the cheaper half as the Russell 1000 Value Index. The more expensive half became the Russell 1000 Growth Index. By establishing both simultaneously, the index creators set up a parallel universe in which you could compare how “cheap” stocks behaved against “expensive” ones. When iShares launched IWD in 2000, it was betting that investors would eventually accept the evidence: that value had worked in the past and stood a reasonable chance of working in the future.

What makes a stock “value” in Russell’s definition

Russell’s definition is objective and mechanical. It looks at three metrics: price-to-earnings (what investors are paying per dollar of current earnings), price-to-book (what they are paying per dollar of net assets on the balance sheet), and dividend yield (the cash income the stock pays as a percentage of its price). Companies that rank low on these measures — cheap relative to earnings, cheap relative to assets, generous in their dividend — get sorted into the Value Index. Those that rank high — expensive relative to earnings, trading well above book value, offering little in dividends — go into the Growth Index.

The result is a portfolio that looks strikingly different from the Russell 1000 as a whole. Where the broad Russell 1000 is heavy in technology and consumer services (expensive sectors with high growth expectations), the Value Index tilts toward financials, energy, industrials, and utilities — sectors populated by older, slower-growing, more established companies. A bank trading at a modest multiple of earnings, a utility paying a fat dividend, an oil company with low expectations baked into its price — these are the holdings of IWD.

This divide has had profound implications for returns. In the 1990s and the years around 2000, Value underperformed dramatically as the growth and tech boom lifted everything expensive. From roughly 2003 onward, as those overpriced companies came back to earth, Value outperformed for years. Since 2010, the pattern has swung back and forth repeatedly, with Value experiencing a long drought relative to Growth from roughly 2015 through 2020, followed by a multi-year resurgence starting in 2021.

How IWD differs from the broader Russell 1000

IWD holds roughly five hundred of the one thousand stocks in the broad Russell 1000 Index — the cheaper half by the Russell definition. The other half, the expensive half, is captured by the Russell 1000 Growth Index and the iShares Russell 1000 Growth Fund (IWF).

Because IWD is tilted toward mature, slower-growing companies in cyclical sectors, it tends to do well in periods when the economy is expanding steadily, when inflation is moderate, and when investors are willing to forgo growth in exchange for dividends and reasonable valuations. It tends to lag when investors are willing to pay premium prices for companies with faster growth, when interest rates are falling (which favors low-dividend stocks), and when the wealth created by the market goes disproportionately to the most expensive names.

The portfolio of IWD is therefore more oriented toward income than the broad market. The dividend yield of the Value Index is typically noticeably higher than the Russell 1000 as a whole, meaning that much of the return an investor gets comes in the form of quarterly dividends rather than price appreciation. This matters for tax efficiency (dividends are taxable for most investors, though often at favourable rates) and for the shape of the returns — more stable, less volatile, but also slower over periods when growth stocks are surging.

Costs and the expense ratio

IWD’s expense ratio is fractional — a few hundredths of a percentage point per year — and the fund trades with deep liquidity on the NASDAQ. Like all Russell-based index funds, IWD reconstitutes itself once per year when Russell recalculates which companies are value and which are growth. This annual rebalancing involves buying and selling large blocks of stocks to match the new index composition, but because it happens in a coordinated way across all Russell-based funds, the process is relatively efficient.

The fund’s size and trading volume mean that the bid-ask spread is typically a single penny per share, making it cheap to enter and exit. For investors using IWD as a core holding or a satellite position in a diversified portfolio, the transaction costs are low.

Risks and the persistent debate

The central risk is the possibility that value investing as a discipline might not work going forward, or might underperform for periods long enough to matter to a given investor’s time horizon. The factors that have made Value outperform historically — mean reversion (cheap stocks becoming less cheap), dividend income, and exposure to cyclical companies that do well during expansions — could simply be less powerful in the future if interest rates remain structurally higher, if growth disparities between large and small companies widen permanently, or if technology disruption continues to favour large-cap winners at the expense of traditional sectors.

There is also sector concentration risk. Because Value methodology loads the portfolio toward financials, energy, and industrials — sectors that are sensitive to economic cycles and regulatory risk — IWD is therefore more exposed to these forces than a broad market fund. A long period of economic stagnation, a regulatory crackdown on energy, or a shift away from traditional finance could all hit a Value fund harder than the broader market.

IWD is ultimately a bet on a specific investment philosophy: that buying cheap is a discipline that works, that the Russell 1000 Value Index captures that discipline faithfully, and that over the investor’s holding period, the value orientation will reward patience. For investors who believe in the premise, it offers low-cost, liquid exposure to that bet.