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.
Related: ETFs That Value Investors Buffett, Munger Would Approve Of
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.
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.
Popular value ETFs include the Vanguard Value ETF (NYSEArca: VTV). 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.
Related: 3 High Octane Value Trades for a Bear Market
Value has recently retreated and that theme could continue over the near-term as the energy and financial services sectors, frequently the two largest sector allocations in many value ETFs, historically lag in November.
“Value stocks tend to be those trading at discounted prices relative to earnings while growth stocks are often higher priced and faster growing. Many folks argue that the proximity of the market cycle has much to do with determining which style is en vogue at a given time. Specifically, growth stocks theoretically fare better during bull markets and value provides better protection in bear markets. We have actually found that the favored style has more to do with the behavior of the underlying sectors than it does the overall market cycle,” according to See It Market.
As is the case with so many Vanguard ETFs, VTV has gained a following due to its paltry expense ratio. VTV charges just 0.09% per year, making it less than expensive than 92% of competing funds, according to issuer data.
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Vanguard Value ETF
