Once again, there’s talk of value stocks bouncing back, but this time around, investors may want to consider a different approach rather than relying on ETFs that previously disappointed. Enter 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.
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.
PVAL “fits the bill as a value fund with a unique methodology – one that could be effective as value investing adjusts to shifting market trends,” reports InvestorPlace. “For starters, PVAL excludes utilities from its roster. That’s meaningful because the group, though defensive, is often richly valued due to its low volatility and above-average yield.”
Right For This Environment
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.
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.
“PVAL’s underlying index – the Nasdaq U.S. Contrarian Value Index – separates financial services stocks from other sectors to find value in other areas,” according to InvestorPlace. “Financials account for 12.76% of this fund’s roster, but that’s a significant underweight compared to more traditional rivals in this category. Rather than emphasizing price-to-book and price-to-earnings, PVAL focuses on book yield, a strategy that’s particularly useful when value stocks are extremely inexpensive as they are today.”
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.
“This value fund has 260 holdings with an average market value of $10.1 billion, so it’s essentially a small large-cap or large mid-cap idea. Confirming its different approach, PVAL allocates almost a quarter of its weight to technology and consumer cyclical stocks, sectors that are often a scant part of old school value funds,” notes InvestorPlace.
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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.