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.
Investors with a slightly greater risk tolerance can take a look at the Vanguard Mid-Cap Value ETF (NYSEArca: VOE). Due to its mid-cap focus, VOE may have a greater risk and reward profile. The ETF tries to reflect the performance of the CRSP U.S. Mid-Cap Value Index, which shifts out growth picks and selects value stocks based on book-to-price, forward and trailing earnings-to-price, dividend yield and sales-to-price. The fund shows a 15.6 P/E, 1.8 P/B and a 1.1 P/S.
Additionally, for a more global footprint, the actively managed Cambria Global Value ETF (NYSEArca: GVAL) tracks companies with strong value characteristics over 45 different countries from both developed and emerging economies, targeting the cheapest, most liquid picks in countries where political or economic crisis have depressed valuations. GVAL’s portfolio shows a 11.2 P/E, 1.1 P/B and a 0.6 P/S.[Global Bargains With This ETF]
It is, however, important to note that just because a market is inexpensive relative to fundamentals that trait does not always portend immediate gains. Likewise, expensive markets do not always immediately fall.
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Max Chen contributed to this article.