After months of declines, things are looking up for stocks. Markets rallied in October, with the S&P 500 closing the month up 8%, the Dow Jones Industrial Average gaining 14%, and the Russell 2000 finishing October up 10.9%.
But while stocks had a good month amid a volatile year, Sandra Testani, vice president of ETF product and strategy for American Century Investments, said that she thinks “a recession is likely for the U.S. and Europe,” and that she expects inflation “to fall going forward… but not go back to pre-COVID levels anytime soon.”
“There’s also a solid chance of stagflation for the future,” she added.
A year of high inflation, volatile markets, and rising interest rates have made investors risk-off in 2022, allocating their money more towards value stocks and constructing their portfolios more defensively.
“We’re proponents of long-term strategic allocation,” Testani said. “Within equities, we’re suggesting more tilted towards quality stocks in defensive sectors, which tends to favor value over growth.”
Added Testani: “If you look at flows, there’s been an overwhelming preference towards value strategies, particularly dividend-paying equities.”
Investors seeking a targeted approach to value stock investing may want to consider the American Century STOXX U.S. Quality Value ETF (NYSE Arca: VALQ) or the American Century Focused Large Cap Value ETF (FLV).
VALQ tracks the iSTOXX® American Century® USA Quality Value Index, which is designed to select securities of large- and mid-cap companies that are undervalued or have sustainable income.
Meanwhile, FLV is an actively managed ETF that seeks large-cap companies selling at a discount to fair value. FLV, which aims to beat the Russell 1000 Value Index, mixes cyclical sectors (like financials) with defensive (including communication services, consumer staples, healthcare, real estate, and utilities).
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