Value stocks and related exchange traded funds outperformed on Monday as investors ditched technology names and turned to more sensitive sectors that could benefit from the improving economy.
“What we’re seeing is a change in the season, and it’s shifting to some of the more cyclical areas of the market,” Robert Pavlik, senior portfolio manager at Dakota Wealth, told Reuters. “Today is an indication as to what you’re going to see going forward.”
Meanwhile, Treasury yields pushed higher as traders continued to anticipate the eventual end to the Federal Reserve’s accommodative policies, which have weighed on mega-cap technology names that typically outperform in a lower-for-longer rate environment.
“We’re easing off that extremely accommodative monetary policy stance as growth improves and we see higher inflation,” Amy Magnotta, co-head of discretionary portfolios at Brinker Capital Investments, told the Wall Street Journal. “Then when the economy should meet the Fed’s target of growth and employment perspective, we could see further tightening in rising interest rates.”
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. It 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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