The artificial intelligence boom has pushed equity valuations to extreme levels, creating a structural trap for investors relying on traditional value exchange-traded funds.
Andreas Neuhaus, writing for Handelsblatt, argues that many value ETFs are built on a fundamental misunderstanding of the current market regime, where even "cheap" stocks are priced at elevated multiples relative to historical norms.
The AI rally has not only lifted growth stocks but has also dragged up the valuation floor for the broader market.
As a result, funds that screen for low price-to-earnings or price-to-book ratios are increasingly holding companies that are no longer genuinely undervalued.
This compression of the value premium means that passive value strategies may fail to deliver the downside protection or outperformance they historically offered during market rotations.
This structural shift coincides with a broader trend of investors seeking diversification away from US tech concentration.