- Value stocks and the corresponding ETFs are making a comeback
- VTV is modestly higher this year and is up nearly 11% over the past month
- VTV, which is market-cap weighted, will have a low degree of tracking error relative to the broad market
The value factor experienced some rough times during the go-go days of the current bull market as the growth and momentum factors soundly outperformed value. With investors embracing safety this year, value stocks and the corresponding exchange traded funds are making a comeback.
For example, the Vanguard Value ETF (NYSEArca: VTV) is modestly higher this year and is up nearly 11% over the past month. VTV follows the tracks the CRSP US Large Cap Value Index and is one of the most widely followed value ETFs. CRSP includes sales/price and historical earnings/price ratio as well as 12-month forward earnings/price ratio and dividend yield to form its value indexes.
Plain vanilla index ETFs that track the value theme has outperformed so far this year, or at least have not done as poorly as broader benchmarks. Nevertheless, potential investors should still look under the hood of these value stock ETFs as no two are created alike and offer varying performances.
“Value stocks are fundamentally cheaper, offering generally slower business growth rates and less exciting rallies. But I will leave the exact definitions to fundamental analysts to ponder. On the charts, stocks grouped into ‘value’ and ‘growth’ areas have indeed shown different performances. We can track their ebb and flow relative to each other with a group of Dow Jones indexes and even fine tune by market capitalization,” reports Michael Kahn for Barron’s.
VTV, which is market-cap weighted, will have a low degree of tracking error relative to the broad market and still be highly correlated to the market. Consequently, VTV’s value bet may be somewhat diluted compared to other options.
Other options include the Guggenheim S&P 500 Pure Value ETF (NYSEArca: RPV). Underscoring the utility of the value factor over long holding periods, RPV is the best-performing ETF since the start of the current bull market on March 10, 2009.
VTV holds nearly three times as many stocks as are found in RPV. Value investing is a popular long-term investment strategy. Value stocks have historically outperformed growth stocks, or companies with high earnings expectations, in almost every market over the long-haul. ETF investors may lean toward value names through value-focused ETFs.
Vanguard Value ETF