There are scores of exchange traded funds dedicated to the value factor on the market today. The PowerShares S&P 500 Value Portfolio (NYSEArca:SPVU) is one of the overlooked value options, but the fund is worth a look by value investors.
SPVU tracks the S&P 500 Enhanced Value Index, which focuses on 100 S&P 500 companies with the greatest value score calculated based on fundamental ratios of a company’s book value-to-price ratio, earnings-to-price ratio and sales-to-price ratio.
“Also important to note is the weighting mechanism employed by the two indices. The S&P 500 Value simply weights securities by market cap, whereas the selection process and the weighting scheme of the S&P 500 Enhanced Value Index assigns higher weights to those securities with bigger value attributes,” according to S&P Dow Jones Indices.
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.
The value factor historically performs well over longer holdings, but a current challenge is the dearth of U.S. stocks considered credible value plays. The financial services sector is one of a small number of groups considered legitimate value destinations at the moment.