Value stocks continue vexing investors, but some market observers believe the group is poised to rebound. That resurgence could be best played with a different approach to value via the Principal Contrarian Value Index ETF (NasdaqGM: PVAL).
The Contrarian Value Index ETF will try to reflect the performance of the Nasdaq U.S. Contrarian Value Index, which includes companies taken from the Nasdaq US Large Mid Cap Index but follows a quantitative model designed to identify those that appear undervalued by the market relative to their fundamental value.
The value/growth ratio now resides at two-decade lows indicating the former is extremely, well, undervalued even by its own historical standards.
“The fact that value underperformed for the longest period of time in history I think makes people believe that value is never going to come back. I believe that will be proven wrong,” says Dave Iben, the founder and chief investment officer of Kopernik Global Investors in an interview with Steve Goldstein of MarketWatch.
Why PVAL Is Different
What makes the Principal ETF alluring for value hunters is that it eschews the typical price-to-book and price-to-earnings ratios approach to value in favor of seeking deep value by emphasizing book yield.
Underscoring the case for PVAL today, there are incredible opportunities for investors to jump into equities while the default maneuver in today’s market landscape is heading into safe-haven assets like bonds or precious metals. Investors, however, could be missing out.
Value investing is a popular long-term investment strategy. Value stocks have historically outperformed growth stocks, or companies with high earnings expectations, in almost every market over the long-haul, but that trend reversed in a big way during the 2010s decade.
Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations.
What makes PVAL relevant today is what constitutes value is shifting, but many value funds aren’t shifting along with the new views of the factor. Conversely, PVAL is better suited to be a value fund for a new value regime, not the one that’s left investors disappointed for so long.
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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.