Value stocks may be attempting to rebound once again and if there’s follow through on that scenario, it could benefit 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.
Last week “exchange-traded funds that follow a value strategy were heading for their best week in about a month, a signal investors may be shifting their attention to market segments that haven’t participated in the recent rally,” according to MarketWatch.
PVAL climbed 3.7% last week.
PVAL Difference
Investors looking for value plays must first understand what makes a company valuable. Whether it’s the product or service itself or its price-to-value ratio, investors will have to do their homework.
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.
“If investors become more convinced of the resilience of the economic recovery, they may bet on shares that are undervalued by some metric, rather than relying on the momentum of stocks that have been consistently rising,” reports MarketWatch.
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.
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.
For more on multi-factor strategies, visit our Multi-Factor 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.