Value stock exchange traded funds jumped Friday while broad U.S. market indices hit record highs, following Federal Reserve Chairman Jerome Powell’s reassurances that the central bank will not overreact to the inflation spike and will maintain patience in tapering its bond purchasing program.
At the Jackson Hole economic conference, Powell argued that inflation was “transitory” and stopped short of signaling the timing for tapering the central bank’s $120 billion asset purchases program beyond “this year,” Reuters reports.
“He successfully threaded the needle in communicating that tapering will likely begin this year, while reinforcing the notion that tapering does not mean tightening,” Cliff Hodge, chief investment officer for Cornerstone Wealth, told Reuters. “We believe that barring further setbacks from the Delta variant, that September will likely produce a blowout jobs number and set the table for the official tapering announcement at the September FOMC meeting.”
Updated data also revealed the Fed’s favored inflation gauge, the personal consumption expenditure index, moderated to 3.6% for the 12 months ending in July, which was higher than the Fed’s flexible 2% target.
“With the growth in money supply, you have to anticipate that there are some long-term inflation problems. So any sectors that have the ability to raise prices, those are the sectors you want to stay in so that if we do get inflation in the long term, you have a natural hedge against that,” Greg Swenson, founding partner of Brigg Macadam, told Reuters. “It’s pretty easy to say at this point in the United States to stay long cyclicals.”
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 and 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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