Value stocks and related exchange traded funds stood out Friday on a boost from the banking segment as traders continued to assess the fallout from the Federal Reserve’s monetary policy and the Russia-Ukraine war.
Rate-sensitive banks like JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, and Goldman Sachs Group Inc rallied in the mid-Friday session, brushing off concerns of a potential recession due to an aggressive Fed policy shift.
“It might be the fact that the 10-year bond interest rate is hitting the highest level it’s been at since March of 2019,” Randy Frederick, managing director, trading and derivatives at Schwab Center for Financial Research, told Reuters.
The benchmark U.S. Treasury 10-year yields touched a three-year high of over 2.7% Friday on bets of a hawkish Fed stance to combat the rising inflationary pressures and potentially overheating economy.
“The market has been down quite a bit. There’s always going to be a price at some point where people are going to step in and think things are cheap and they might buy … perhaps a 52-week low was enough to entice some people into the financial sector,” Frederick added.
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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