The October/November rally and November’s softer CPI print may have gotten investors excited at the prospect of a market freed from the specter of a rate hike-induced recession, but caution may be merited via more quality-focused, value-oriented strategies.
Fannie Mae sees the decline of housing sales, as well as drop offs in business investment and a strong labor market, as factors leading to a modest recession next year. Investors who want to trust a quality-focused value ETF might want to follow the American Century STOXX U.S. Quality Value ETF (VALQ) if Fannie Mae proves to be correct.
After several quarters of growth strategies getting a lot of the attention, it may be value’s turn to be the belle of the ball. While not dominant per se among investment styles right now, large value in particular has seen a jump in performance, with 8.6% over one month compared to -4.5% YTD, according to YCharts. Large value ETFs have also taken in $6.2 billion over the last month, the third most popular category based on ETF net inflows.
A quality-focused value ETF can ride that wave of interest via investing in large names with good fundamentals. VALQ tracks the iSTOXX American Century USA Quality Value Index, screening stocks based on value, quality, and income. VALQ looks to allocate 30–80% of its portfolio into value stocks, with 20–65% in stocks offering income.
VALQ owns a relatively targeted sector of the market, with its largest holdings including large biotech firms. The ETF holds Gilead Sciences, Inc. (GILD) at 2.7% and Amgen, Inc. (AMGN) at 2.4%, with the former known for HIV, liver, and inflammation treatments and the latter recently noted for a new drug treatment targeting obesity. GILD meanwhile offers some notable dividends and upside since a positive Q3 earnings report.
VALQ added $1.3 million in net inflows over three months, and has outperformed the ETF Database Category Average and the Factset Segment Average alike with its 11.2% one month return. VALQ charges a 29 basis point fee with an annual dividend yield of 1.5%.
It’s clear that there’s demand for strategies which look to dividend and income stocks while trusting long-term quality to navigate uncertain times. Investors looking for funds like those should keep an eye on VALQ as the dust starts to settle from a volatile year.
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