With a rising likelihood of recession during the second half of 2023, value ETFs have an important role to play in portfolios.
Many leading indications in the housing, manufacturing, and credit sectors point to economic weakness. Coupled with the uncertainty around stubborn inflation and interest rates, U.S. markets could see a slowdown in growth as soon as the second half of this year.
During periods of economic decline, value stocks are poised to outperform their growth counterparts. Value ETFs and stocks tilt toward more defensive sectors, which have historically been more resilient during economic contractions and recessions.
“When the going is expected to get tough, investors often turn to value stocks that have strong fundamentals,” Todd Rosenbluth, head of research at VettaFi, said.
Furthermore, value stocks have also tended to perform well when the economy has bottomed and is beginning to reaccelerate, according to Hartford Funds.
How to Add Value Exposure to Portfolios
Three funds that offer quality value exposure include the Hartford Multifactor US Equity ETF (ROUS), the Hartford Multifactor Small Cap ETF (ROSC), and the Hartford Multifactor Diversified International ETF (RODE).
Multifactor ETFs can help investors comfortably maintain their target equity exposure during choppy markets. The funds are designed to navigate a potential lower-growth, higher-volatility market.
ROUS, ROSC, and RODE aim to provide a less volatile experience for investors. The funds target a 15% volatility reduction over a complete market cycle.
ROUS provides exposure to quality, defensive-value U.S. equities while ROSC offers access to small-cap markets. Conversely, RODE provides exposure to international developed markets as well as emerging markets.
Despite value stocks’ outperformance last year, valuations are still below average relative to their own history. Investing in companies with lower valuations offers greater upside opportunity.
For more news, information, and analysis, visit the Multifactor Channel.
Investing involves risk, including the possible loss of principal.
This article was prepared as part of Hartford Funds paid sponsorship with VettaFi. Hartford Funds is not affiliated with VettaFi and was not involved in drafting this article. The opinions and forecasts expressed are solely those of VettaFi. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, a recommendation for any product or as investment advice.