Large cap value stocks usually reside on the more conservative end of the investment spectrum. After years of disappointment these names are ready to regain their long-term viability according to many fund managers.
Cost-conscious investors can get in on that rebound with broad-based exchange traded funds such as the SPDR S&P 500 Value ETF (NYSEArca: SPYV).
SPYV’s underlying index – the S&P 500 Value Index – “contains stocks that exhibit the strongest value characteristics based on book value to price ratio, earnings to price ratio, and sales to price ratio,” according to State Street.
“The new year is just over a month old, but it has been dominated by the spectacular rise and fall of speculative stocks and a continuation of the small cap rally. In this kind of environment, few people may envy a large-cap value investor, but Randall Eley thinks slow and steady wins the race,” reports Teresa Rivas for Barron’s.
SPYV Bringing Value Back
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 rapid growth in those company measures. Many investors are growing wary of high valuations in growth stocks.
“While large cap value may not be in fashion at the moment, Eley argues that it’s still a successful strategy worth pursuing, especially given that these companies also tend to have higher-than-average dividend yields,” according to Barron’s. “While many of his holdings didn’t shine in the pandemic-dominated 2020, he says he had the opportunity to invest in big well-managed companies that aren’t ‘just sitting dead in the water,’ but making adjustments for future growth.”
Value investing is a popular long-term investment strategy. Value stocks have historically outperformed growth stocks in almost every market over the long-haul, but that trend reversed in a big way during the 2010s.
At the sector level currently, energy, financial services, and healthcare look like some of the more credible value destinations. That’s relevant when discussing SPYV because those groups combine for about 40% of the ETF’s weight.
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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.