The value factor made a comeback last year, prompting investors to allocate billions of dollars in new capital to exchange traded funds focusing on value stocks.
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.
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.
Some market observers believe the value factor could face some challenges this year.