With volatility on the rise, investors are looking for more solid plays, such as value-oriented exchange traded funds that tend to be less risky than growth stocks.
Active traders may be taking a look at value stocks after the spike in recent volatility, writes Casey Murphy for Investopedia. While the equities market is still experiencing short-term pressure, value stocks are nearing their long-term support, which suggests that the asset category could offer improved risk-to-reward ratios.
For instance, the Guggenheim S&P 500 Pure Value ETF (NYSEArca: RPV) focuses exclusively on the cheapest area of the S&P 500, replicating the performance of the S&P Pure Value Index. [Don’t Forget These Value ETFs]
The S&P sets value and growth scores on each stock in the S&P 500 and selects stocks based on the lowest growth to value score in an attempt to emphasis components with the greatest value tilt. For the value component, the index rates picks based on price-to-book, price-to-sales and price-to-earnings. While other value stock ETFs may include blend stocks, RPV will target components with the greatest value tilt.
Consequently, RPV comes out with a 13.8 P/E, 1.1 P/B and a 0.7% P/S. In contrast, the S&P 500 index has a 17.6 P/E, 2.4 P/B and a 1.6 P/S, according to Morningstar data.