Investors positioning for a rebound in value stocks may want to go deep with the Roundhill Acquirers Deep Value ETF (NYSEARCA: DEEP).
DEEP, which turns six years old next month and recently joined the Roundhill stable of ETFs, follows the Acquirers Deep Value Index.
“The Acquirers Deep Value Index seeks to find undervalued stocks using the Acquirer’s Multiple, the same measure used by activists and buyout firms to identify targets,” according to Roundhill.
As such, 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 investors try to buy stocks for less than they’re worth. To find them, they hunt in the bargain bin, turning over ignored, and out-of-favor companies to find the few that have traded down below intrinsic value. The reason is that deeply discounted businesses offer better returns with less downside than their expensive peers,” writes Tobias Carlisle, founder of Acquirers Funds, in a recent note.
Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades.
“Currently, cheap value stocks are lagging expensive stocks by the widest margin since 1951–56 percent. Cheap stocks have lagged behind expensive stocks by more than 20 percent four times since 1951–1960, 1980, 2000, and since 2015,” according to Roundhill research. “This is also the longest time cheap value stocks have lagged behind expensive stocks–6 years. In 1960 value lagged for 2 years and 3 months. In 1980, almost 3 years. In 2000, just 18 months.”
DEEP also compensates investors for their patience with value stocks as the fund yields 7.92%. Plus, there are other relevant statistical considerations.
“In short, cheap stocks (as measured by Ken French’s price-to-cash flow data series) have significantly beaten out expensive stocks. The catch is regularly lagging expensive stocks. Cheap stocks lag most of the time, but when they lead, they lead by a wider margin,” said Roundhill.
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.