The onset of the COVID-19 pandemic in 2020, the subsequent market crash, and the continued volatility in markets driven by inflationary fears and geopolitical tensions have investors feeling less certain about their portfolios, and more open to risk. The KFA Value Line Dynamic Core Equity Index ETF (KVLE) is a fund that can help investors more confidently navigate in down markets, mitigating some of the decline while also positioning to capture equity appreciation in the long term.

KVLE follows a strategy of investing in higher-yield companies while diversifying in a way that a “theme” portfolio does not. The fund is a core equity portfolio of securities that are tilted to favor dividend yield, and it seeks to increase yield while avoiding investing solely in high-yield sectors and stocks.

Value Line Funds’ CEO, Mitchell Appel, recently sat down with KFA Funds to discuss the history of Value Line and its methodology. Value Line was founded by Arnold Bernhard in 1931 after watching the stock market crash of 1929 and deeming that the current system didn’t properly analyze stocks.

“He set out to develop a set of objective measures that would signal when a stock was overvalued and when it was undervalued – measures that would not yield to emotions. What followed revolutionized the practice of securities analysis and sent Value Line on its path to being one of the nation’s largest independent investment research services,” said Appel.

While experiencing the volatility of the broader market, KVLE has managed to outperform the S&P 500 for almost the entirety of the year; year-to-date, KVLE has had a -1.81% return so far, while the S&P 500 has experienced a -4.6% return as of March 31.

Image source: KFA Funds

The Value in Timeliness and Safety

KVLE is benchmarked to the 3D/L Value Line Dynamic Core Equity Index and utilizes optimization technology to emphasize securities with solid dividend yields that have the highest rankings in both Value Line Safety and Timeliness. The Value Line Safety Rank measures the risk of a stock when compared to other stocks within the Value Line universe and is measured from a financial strength rating as well as a price stability score for a company.

“Stocks with high Safety Ranks are often associated with larger, financially sound companies; these same companies also often have somewhat less-than-average growth prospects because their primary markets tend to be growing slowly or not at all,” Appel explained.

The Timeliness Rank measures the anticipated price performance of a stock over the coming six to 12 months compared to the broader stock universe, and earnings growth plays a large part.

“Companies whose earnings growth over the past decade has been greater than their stocks’ price appreciation tend to have a higher rank,” Appel said. “In addition, the ranks take into account a stock’s recent price performance relative to all the other stocks in the Value Line® universe, capturing the particular stock’s momentum.”

The fund uses a smart beta strategy in seeking more cost-efficient alpha as well as a risk management strategy that seeks to limit the effects of major market declines while also being positioned to capture positive returns.

KVLE carries an expense ratio of 0.55%.

For more news, information, and strategy, visit the China Insights Channel.