Value stock exchange traded funds rallied alongside the broader market Thursday as strong quarterly earnings helped maintain the upward momentum, despite some mixed economic data.
On Thursday, updated economic data revealed the trade deficit widened to a higher-than-expected $75.7 billion in June as American consumers bought more foreign goods, the Wall Street Journal reports.
Jobless claims, a proxy for layoffs, dipped slightly to 385,000 last week, and worker filings for new unemployment benefits are still around levels nearly double that of the pre-pandemic average.
“We’re pretty positive, we think that the earnings data is very strong,” Caroline Simmons, U.K. chief investment officer at UBS Global Wealth Management, told the WSJ.
Simmons argued that the weakness in the labor market could allow the Federal Reserve to hold off on rolling back its easy money policies for now.
“Unemployment is higher than it was pre-pandemic, and central banks feel there is still excess capacity in the labor market,” Simmons added. “When it comes to it, we believe that monetary tightening will be relatively gradual, well flagged, and actually, equities will probably be able to absorb it.”
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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