With modest inklings of value stocks being on the mend, investors may want to consider a conservative approach to a factor that is itself often viewed as conservative. One way of doing that is with the AGFiQ U.S. Market Neutral Value Fund (NYSEArca: CHEP).
AGFiQ’s market neutral ETFs don’t focus on going long stock components that have historically exhibited minimal swings in volatility. Instead, the market-neutral ETFs hold an equal dollar amount long and short within the various segments of the U.S. market, based on quantitative factors like momentum, size, and quality.
Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations.
Call on CHEP
CHEP “provides consistent exposure to the value factor by investing in the underlying index which reconstitutes and rebalances monthly in equal dollar amounts in equally weighted long high value (cheap) positions and equally weighted short low value (expensive) positions within each sector,” according to the issuer.
Given certain market conditions, investors need more than just a passive index that goes beyond a one-size-fits-all template that uses market cap weighting. While these indexes provided simple, low-cost solutions, the need for even greater scrutiny is necessary in the quest for more alpha—a case for smart beta or long short strategies like CHEP.
“CHEP’s objective is to seek performance results that correspond to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Thematic Market Neutral Value Index,” according to the issuer. “In striving to achieve this objective, CHEP provides exposure to the ‘value’ factor by investing in U.S. equities that have below average valuations and shorting those securities that have above-average valuations.”
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.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
