Recession concerns continue to grow after Federal Reserve Chair Jerome Powell underscored the commitment to driving down inflation even at the cost of economic “pain” after the most recent FOMC meeting and 0.75% rate hike. In an environment of rising rates, advisors and investors have rotated from growth-oriented strategies focused on future earnings to an approach centering U.S. value ETFs, to place greater emphasis on current earnings.
U.S. value ETFs have been enormously popular this year as advisors tilt their portfolios towards the companies that generally are more established and therefore can carry a lesser risk profile than their growth counterparts while also providing capital growth opportunities. Many value companies also pay dividends, an attractive source of income in a challenging time for portfolios.
- ILCV invests in U.S. companies that are currently believed to be underpriced in the markets compared to their peers. The fund seeks to track the Morningstar US Large-Mid Cap Broad Value Index that offers exposure to large and mid-cap companies with low valuations based on their price-to-earnings, price-to-book value, price-to-sales, price-to-cash-flow, and dividend yields.
- As of April 30, 2022, the underlying index had significant weighting in the financial services sector and the healthcare sector. The fund has quarterly distributions and a price-to-earnings ratio of 13.50x as of 09/28/2022.
- ILCV offers the cheapest exposure to U.S. value stocks with an expense ratio of 0.04%.
- IMCV offers exposure to mid-cap U.S. companies believed to be undervalued in markets compared to comparable companies. Mid-caps offer some unique advantages over their large- and small-cap peers in that they are nimble enough to respond to changing environments whereas large-caps are generally too established to enact changes on a meaningful timeline, but are more financially established than small-caps and are generally able to weather financial and economic hardships better.
- The fund seeks to track the Morningstar US Mid-Cap Broad Value Index. As of April 30, 2022, the underlying index had a significant allocation to the financial services industry. The fund has quarterly distributions and a price-to-earnings ratio of 11.04x as of 09/28/22.
- IMCV has an expense ratio of 0.06%.
- VBR offers targeted exposure to small-cap U.S. companies. Small-cap investing can offer significant upside potential for growth as well as the possibility of outsized returns compared to large-caps. The fund has a well-established track record with an inception date of 2004 with distribution returns post-tax of 6.21% over the last three years and 5.57% over the last five years.
- The fund seeks to track the CRSP US Small Cap Value Index, a diversified index of small-cap companies in the U.S. and as of 08/31/2022 had heavy allocations to industrials and the financial sector. VBR has quarterly distributions and a price-to-earnings ratio of 10.4x as of 08/31/2022.
- VBR has an expense ratio of 0.07%.
- SPYD is part of the low-cost core ETF suite offered by State Street and seeks to provide a high level of dividend income, a popular strategy in 2022, as well as the potential for capital appreciation. The fund invests in the top 80 high dividend-yielding companies from the S&P 500 with distribution returns post-tax of 7.34% over the last 3-years and 6.25% over the last 5 years.
- The fund seeks to track the S&P 500 High Dividend Index and sectors with the largest allocations were divided across financials, utilities, and real estate as of 09/28/2022. SPYD has quarterly distributions and a price-to-earnings ratio of 10.03x as of 09/28/2022.
- SPYD has an expense ratio of 0.07%, offering exposure to dividend-paying companies for an extremely attractive price.
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