For the first time in several years, the value factor is being embraced by advisors and investors. That is prompting renewed attention on and inflows to exchange traded funds emphasizing this widely followed factor, including the iShares MSCI USA Value Factor ETF (NYSEArca: VLUE).
Since its emphasis is value, VLUE is sector agnostic. For example, VLUE’s energy weight of 6.8% is low compared to other value ETFs. Likewise, its financial services weight of 14.8% is also modest relative to other value funds. That sector is VLUE’s third-largest weight whereas many value ETFs feature energy and financial services as their top two sector exposures.
“Stocks that are cheap in relation to the underlying company’s profits, revenues, book value (assets minus liabilities) or other factors tend to provide healthier returns than other stocks. However, value, like all other strategies, can flounder for many years at a time. In fact, value stocks have badly lagged growth stocks (companies with above-average growth) since 2005. That makes this a good time to start building a position in bargain stocks because an investing style that has lagged for years often bounces back strongly,” according to Kiplinger’s.[related_stories]
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. For instance, the MSCI USA Value Index has outperformed the MSCI USA Growth Index by an annualized 81 basis points since 1974 through September 2015.
“Since the fund’s inception in mid 2013, it has, as you’d expect, lagged the S&P 500, by an average of 3.0 percentage points per year. It invests in cheap stocks, but it doesn’t overweight broad industry sectors. The ETF charges just 0.15% in annual expenses,” adds Kiplinger’s on VLUE.
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.
iShares MSCI USA Value Factor ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.