Value stocks and related exchange traded funds climbed Thursday as strong economic data and a bipartisan Senate infrastructure deal helped lift cyclical sectors.
The latest data on weekly jobless claims, a proxy for layoffs, revealed 411,000 people applied for unemployment benefits, or slightly less than the prior week’s 418,000, which was an unexpected increase, the Wall Street Journal reports.
“The labor market is pivotal, it is clearly one of the targets of the Federal Reserve,” Monica Defend, global head of research at Amundi, said before the data was released. “It’s what is restraining the Fed from acting more boldly.”
Additionally, durable goods orders increased 2.3% in May, albeit at a slower-than-expected pace.
After the U.S. economy expanded at a 6.4% annualized rate over the first quarter, partially due to the massive fiscal stimulus, investors have been looking forward to an infrastructure agreement that could support the next leg of the economic recovery.
“In the short term, I think there will be some ‘buy the rumor and sell the news’ in materials and industrials, but as we start to see more details come out about how the money will be spent, I think we will get a continued benefit,” Sal Bruno, chief investment officer at IndexIQ, told Reuters.
Investors who are 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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