Getting pure value in today’s market environment has been the prevailing trend with ETFs like the Invesco S&P 500 Pure Value ETF (RPV) rising over 20% as the second quarter of 2021 gets underway.
RPV seeks to track the investment results (before fees and expenses) of the S&P 500® Pure Value Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.
The underlying index is composed of a subset of securities from the S&P 500® Index that exhibit strong value characteristics. Invesco’s strategy includes:
- Assigning securities two “style scores” – one for value and one for growth – based on the characteristics of the issuer. The “value score” is measured using three factors: book-value-to-price ratio, earnings-to-price ratio, and sales-to-price ratio. The “growth score” is measured using three other factors: three-year sales per share growth, the three-year ratio of earnings per share change to price per share, and momentum (the 12-month percentage change in price).
- The ratio between the growth score and the value score is used to rank each stock as either deep value, blend, or deep growth, and only the deep value stocks are selected and are factor weighted such that securities demonstrating the strongest value characteristics receive proportionally greater weights.
Value Still in Pole Position
Growth certainly had its day in the sun during the bull market run just before the pandemic threw investors for a loop in 2020. At that time, value equities were scrapped in favor of their growth counterparts to capture the upside of big tech companies like Google and Amazon.
Since the pandemic, however, value is surging. Investors are opting to re-focus on company fundamentals and look for equities that are undervalued in terms of their intrinsic value relative to market value.
“RPV maintains a ‘pure value’ focus, holding a relatively small number of firms that demonstrate the most significant value characteristics, while IVE uses a more liberal definition of value stocks and includes several securities that are also found in the growth counterpart,” an ETF Database analysis explained. “RPV is slightly more expensive, but is a more targeted choice for those investors who are seeking to focus explicitly on value companies. Not surprisingly, RPV exhibits a bias towards certain sector of the U.S. economy, generally tilting exposure towards financial companies and energy firms.”
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