Value ETFs Strengthen as Infrastructure Bill Lifts Cyclical Sectors

Value stock-related exchange traded funds rallied on Monday as the $1 trillion infrastructure bill helped lift economically sensitive sectors.

On Saturday, Congress passed the delayed infrastructure bill hailed by President Joe Biden as a “once in a generation” investment, Reuters reports.

“That infrastructure bill is going to put some energy into companies like 3M, Caterpillar and other companies that power the industrial sector, but we also think the materials sector is going to really benefit from that bill,” Greg Bassuk, chief executive at AXS Investments, told Reuters.

The broad U.S. markets have maintained their positive momentum, setting record highs in recent weeks on strong corporate earnings and signs that the economic recovery remains on pace, with recent data showing a rebound in job growth over October. According to Refinitiv data, about 81% of S&P 500 companies that have reported results this season have topped analysts’ earnings forecasts, the Wall Street Journal reports.

“It’s been a really good earnings season, so markets continue to power ahead driven by earnings growth,” Altaf Kassam, head of investment strategy for State Street Global Advisors, told the WSJ. “What we’re seeing is companies do have the pricing power they need and consumers are spending some of the cash they’ve saved up over the pandemic.”

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.

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