Value stocks and exchange traded funds are proving durable against the backdrop of broader market weakness this year, but some investors may be searching for value enhancements.
Enter the Invesco S&P 500 Enhanced Value ETF (SPVU). SPVU tracks the S&P 500 Enhanced Value Index. That benchmark “tracks the performance of stocks in the S&P 500® Index that have the highest ‘value score,’” according to Invesco.
The $193.3 million SPVU is trading slightly higher this year while the S&P 500 is trading lower. Soaring inflation, which many investors believe is hindering the broader market, could be beneficial to value stocks as 2022 moves forward.
“If you think about investing time horizon, the expectation is that a value stock will return capital to shareholders faster than a growth stock,” notes BlackRock research. “This is because, by definition, much of the expected cash flows from lower-multiple (value) stocks is front-end loaded. Conversely, growth stocks are considered longer-duration assets with expectations of greater cash flows further into the future.”
While SPVU’s year-to-date upside is modest, it’s still better than the slump being endured by broader benchmarks. Additionally, the value fund has favorable history on its side.
“In an analysis of growth versus value using data since 1927, we found value has achieved greatest outperformance in periods of moderate to high inflation. It is only when inflation was very low that value performance paled,” adds BlackRock.
Indeed, SPVU lives up to the value proposition it advertises, as large- and mid-cap value stocks combine for over 77% of the fund’s weight.
On a related noted, sector exposures are critical components in charting value ETFs’ performances, and that’s relevant in today’s inflationary climate.
“Sectors that performed the best included energy, healthcare and financials. Among those that performed the worst: consumer discretionary/staples, utilities and materials,” concludes BlackRock. “While we don’t see high inflation persisting for the extended length of time that it did five decades ago, we see some sector-level patterns that could repeat (or rhyme), and others where it is less likely.”
SPVU, which holds 99 stocks, devoted 57.53% of its weight to financial services and healthcare stocks. Energy and materials — two prime value destinations with stout inflation-fighting credentials — combine for 15.5% of SPVU’s roster.
For more news, information, and strategy, visit the ETF Education Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
