Neutral Value Rebound Helps This ETF | ETF Trends

The rally in value stocks is bolstering a slew of ETFs, including unique strategies, such as the AGFiQ U.S. Market Neutral Value Fund (NYSEArca: CHEP). In fact, CHEP is up 7.11 percent over the past week.

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.

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, but that has not been the case for more than a decade. Obviously, value stocks are classified that way because they trade at discounts relative to other factors, such as growth, size, etc., but the current valuation anomaly is extremely rare by historical standards.

Call On CHEP As Value Rebounds

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.

CHEP has 200 long positions and 200 short positions to deliver 100% net long exposure. Investors may find this market-neutral strategy an attractive way to diversify a portfolio because it could be expected to have a very low beta to the equity market and very low volatility.

“(Value) seems to have had a precipitous resurrection following years of significant underperformance,” said Maxwell Grinacoff, a derivatives and quantitative strategist at Macro Risk Advisors. “Investors probably feel that we found a floor in interest rates for the time being. As bonds have been unwound, so have bond-proxy like sectors, which drove momentum lower. In any crowded trade, you are going to see a massive unwind.”

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