The SPVU ETF and the History of Value Investing

The S&P 500 Value index continues to outpace its growth counterpart. Investors looking for additional gains via a scoring methodology can consider the Invesco S&P 500 Enhanced Value ETF (SPVU).

SPVU seeks to track the investment results of the S&P 500 Enhanced Value Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.

At the heart of SPVU is its underlying index, which is designed to track the performance of approximately 100 stocks in the S&P 500® Index that have the highest “value score” that is calculated based on fundamental ratios of a company’s stock. A value stock tends to trade at a lower price relative to such fundamentals and thus may be considered undervalued by investors.

“The concept of value investing dates back at least as far as the 1920s, when Benjamin Graham and David Dodd first began teaching finance at Columbia University,” a Morningstar article explained. “The fundamental principles of value investing were later enshrined in the duo’s classic ‘Security Analysis,’ first published in 1934.”

“The idea is painfully simple: Buy stocks at prices below their intrinsic value and wait patiently for their market price to reflect their true worth,” the article added. “Graham looked for stocks selling at discounts to their net current assets and specifically those priced at 66% or less of the company’s underlying current assets.”

SPVU Chart

Value’s Historical Performance

While value has been returning to favor for investors as of late, its history of performance can be traced back to previous academic studies. Fast forward to current times and as mentioned, the S&P 500 value index is outpacing the growth index about 5% so far in 2021.

“In subsequent years, countless academic studies proved that Graham was on to something,” the Morningstar article said. “In 1986, for example, Harry Oppenheimer studied the returns of stocks listed on the NYSE and AMEX trading at 66% or less of their net current assets between 1970 and 1983. The mean return from net current asset stocks during the period was 29.4% a year versus 11.5% year for the combined indices.”

“That same year, Roger Ibbotson studied stocks that were trading at low price/book and price/earnings ratios between 1967 and 1984 and found that stocks with low price multiples had significantly better returns over the period than stocks with high price multiples,” the article added.

^IVX Chart

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