Value stocks and related exchange traded funds rallied as new data suggested the economy finally strengthened above pre-pandemic levels.
The U.S. economy expanded in the second quarter, putting the level of gross domestic product above its pre-pandemic high, but some warned that the pace of growth has been slower than anticipated, Reuters reports.
With GDP numbers below expectations, “people are thinking this is going to slow down the talk about tapering, and that’s what people want to see,” Peter Tuz, president of Chase Investment Counsel, told Reuters. Investors also saw “some pretty good earnings today.”
The Federal Reserve has stated that it will continue to maintain its accommodative measures. The Fed said there was “very little support” for rollbacking its $40 billion in monthly purchases of mortgage-backed securities “earlier” than the $80 billion in Treasuries.
A strong quarterly earnings was also supporting the risk-on attitude on Thursday. About half of S&P 500 companies reported second-quarter earnings as of Thursday, and almost 91% of those companies beat profit expectations. Second-quarter earnings are now projected to surge 87.2% year-over-year, according to Refinitiv data.
ETF investors interested in a targeted approach to the value segment can look to the American Century STOXX U.S. Quality Value ETF (NYSEArca: VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield, and cash flow yield, along with a sustainable income score based on dividend yield, dividend growth, and dividend coverage.
The American Century Focused Large Cap Value ETF (FLV) tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental value measures, like earnings and the book value of assets.
Lastly, the Avantis U.S. Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in U.S. small cap companies and is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.
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