U.S. markets surged Tuesday as economically sensitive sectors and value style exchange traded funds rebounded from the precipitous, coronavirus-induced selling in the previous session.
“The narrative from yesterday that bled through the weekend was a little bit of a risk-off scenario around the increasing COVID cases,” Charlie Ripley, senior investment strategist for Allianz Investment Management, told Reuters. “I don’t think it’s so much that investors are worried about the cases themselves. It’s government officials and their reaction, where we could get into a situation where restrictive measures get put in place again, that dampens growth over the long run.”
Cyclical sectors took a heavy blow Monday as the economic reopening trade unraveled on fears that the more infectious Covid-19 Delta variant would push the government to impose another lockdown. However, the steep selling may have also presented a buying opportunity for others with a longer view of the markets.
“When you get a selloff like we had yesterday, there are certainly going to be some investors who are going to see that as an opportunity to invest for the longer term,” Kiran Ganesh, a multiasset strategist at UBS Global Wealth Management, told the Wall Street Journal. “Especially where the 10-year [Treasury] yields have gone, that still points to the default position for investors as long equities, because there are simply very few other options.”
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 measures of value, 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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