Value ETFs Strengthen After Economic Data Shows Recovery on Course

Value stock-related exchange traded funds advanced with the broader U.S. markets hitting another record high on Thursday as cyclical sectors rallied in response to data that showed the economic recovery is still on target.

The Wall Street Journal reports that jobless claims, a proxy for layoffs, declined to 340,000, marking a new pandemic low. The Federal Reserve previously signaled that the labor market strength would be a factor to determine its monetary policy outlook.

“With jobless claims hitting a pandemic low, there’s definitely some optimism as we look ahead to the full jobs picture tomorrow,” Mike Loewengart, managing director of investment strategy at E*TRADE Financial, told Reuters.

“But keep in mind there’s no shortage of headwinds when it comes to the labor market — with pockets of resurging COVID cases impacting reopenings and employees heading back to work. And with stimulus drying up, there’s some reasoning behind the drop off in claims,” Loewengart added.

Separately, updated data revealed the U.S. trade deficit shrunk to $70.1 billion over July as American consumers spent more on in-person services and less on physical goods.

A Possible Taper

The market’s next focus will be on the Labor Department’s monthly jobs report on Friday. Money managers have signaled that they are closely watching the jobs report for August since it will provide more cues on how the Fed could taper its massive bond purchasing program.

“The confluence of a strong recovery at the same time as very low-interest rates and maybe the peak of policy accommodation: if you put those all together, it is a potent mix for risky assets,” Bill Papadakis, a macroeconomist at Lombard Odier, told the WSJ. “If you consider the alternatives in which investors could put their money today—with interest rates where they are—equities are often the one option for somewhat better returns.”

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. It is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.

For more news, information, and strategy, visit the Core Strategies Channel.