Value stock exchange traded funds climbed Wednesday as investors looked to the momentum behind the economic recovery.
“The main factor in that move between growth and value is COVID and the Delta variant and its impact on the economy,” Tim Ghriskey, chief investment strategist at Inverness Counsel, told Reuters. “Over time, we’ve seen the market focus flip flop between these two outlooks for the economy as investors try to grapple with the near-term economic outlook.”
Updated economic data has revealed indications that waning inflation is slowing after the spike earlier this year and a return to economic normalcy, despite ongoing supply constraints complicated by Hurricane Ida, which further weighed on factory output.
Furthermore, import prices saw their first monthly dip since October 2020, marking another sign that the wave of rising prices may have peaked and further supporting the Federal Reserve’s position of a transitory inflationary outlook.
Investors will be watching for the Federal Open Markets Committee’s two-day monetary policy meeting next week for signals on when the central bank will start to taper its supportive pandemic-era asset purchases.
Some, though, have shown concern over the pace of the economic recovery as the spread of the COVID-19 Delta variant, an economic slowdown in China, and supply-chain difficulties have all weighed on sentiment.
“We’ve shifted from worrying about premature tightening [by the Federal Reserve] killing off the recovery in equities to concerns about the strength of the recovery weighing on equities,” Sebastian Mackay, multi-asset fund manager at Invesco, told the Wall Street Journal.
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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