The value factor was one of just two investment factors (the other was size) to deliver performances that topped the broader market last year and that was enough to spur investors to pour billions of new capital into exchange traded funds dedicated to the value factor.
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.
“Price-to-book measures the relative price of a stock against the company’s most recently reported book value of assets. Traditionally, value stocks tend to be from slower growing, more mature industries—think industrial and financial companies—as opposed to growth stocks, currently at a 4.7 price-to-book ratio and more heavily concentrated in technology and consumer services,” reports Ari Weinberg for the Wall Street Journal.