In times of heavy volatility, it helps to invest in the value factor. While value doesn’t guarantee a surefire avenue to protect against losses, it can help ease the pain. Consider funds like the iShares Focused Value Factor ETF (FOVL).
What’s in value that helps mute losses in a downturn? It’s the quality of companies the value factor focuses on, and an eye towards the long-term investing horizon by understanding intrinsic value.
“Value investing is a long-term, conservative approach to investing. When you invest in value stocks, you’re looking to buy and hold companies whose share prices are currently lower than their intrinsic value, ” a Forbes article explained. “To calculate intrinsic value and determine good buys, value investors analyze the fundamentals of a company’s performance—things like earnings, revenue, cash flow and price-to-earnings ratios, along with a host of other financial information.”
Value is precisely what investors are getting. It’s the difference between current and intrinsic value.
“By identifying and purchasing stocks priced by the market below their intrinsic value, value investors aim to profit when the broader market in time also recognizes that the stocks are underpriced,” the article explained further. “If their fundamental analysis is correct, the value stocks should rise in price, earning them decent returns.”
As for FOVL, it seeks to track the to track the investment results of the Focused Value Select Index, which is an objective, rules-based, equal-weighted equity index provided by FTSE Russell. The underlying index measures the performance of large- and mid-capitalization U.S. companies with prominent value factor characteristics, as determined by Russell.
The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash, and cash equivalents. FOVL is up 18% so far in 2021.
Slow and Steady Wins the Race
It’s the patient, disciplined investor who wins out in the long run.
“Value stocks can provide lower volatility and steadier growth over the long run,” says Ryan Schuchman, investment advisor and partner at Cornerstone Financial Services. “Oftentimes, value companies also provide the benefit of dividends, which are a significant plus during market declines. Furthermore, a basket of value stocks may offer significant upside as the companies increase their performance.”
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