Value stocks and related exchange traded funds jumped on Thursday as traders more or less put the sell-off from problems with China’s Evergrande Group in their rearview and felt relief from the Federal Reserve’s pace of monetary policy tightening.
The Fed stated on Wednesday that it could reduce its monthly bond purchases as soon as November and interest rates could rise quicker than expected by next year, Reuters reports.
Fed Chair Jerome Powell also explained that the requirements for hiking interest rates from the current levels are much higher than for tapering its bond purchasing program.
“This is a follow-on rally from a very good Fed meeting,” Tim Ghriskey, chief investment strategist at Inverness Counsel, told Reuters.
“To me that showed there were no surprises and things were as expected,” he added. “Any Fed rate hike is still quite a ways off and so much can change between now and then.”
The early week concerns also eased over a potential default by Chinese property developer Evergrande despite reports that some debt holders of the firm’s dollar bonds did not expect a coupon payment by a key Thursday deadline.
“There is some confidence that the government is standing by to make sure that this doesn’t become more widespread,” Stephanie Lang, chief investment officer at Homrich Berg, told the Wall Street Journal. “There is no clear indication that they are going to prop up Evergrande, but they will make sure that this won’t spillover more broadly.”
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.