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).
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.
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.[related_stories]
VLUE “seeks to track the performance of an index that measures the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations, before fees and expenses,” according to iShares.
The ETF allocates over 37% of its weight to technology and financial services stocks with another 26.6% going to healthcare and consumer discretionary names. Seven of VLUE’s top 10 holdings are members of the Dow Jones Industrial Average, including Apple (NasdaqGS: AAPL), Pfizer (NYSE: PFE) and Chevron (NYSE: CVX).
VLUE “uses the value factor by investing in large- and mid-cap stocks in the United States whose fundamentals make them undervalued compared to other stocks. Those fundamentals include three ratios: price-to-book, price-to-forward earnings and enterprise value-to-cash flow from operations,” according to Investopedia.
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.
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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.