Value-oriented stock exchange traded funds have been outperforming and may continue to lead the markets as we head toward the late business cycle and after falling behind the growth style in recent years.
The value factor is also one of the most popular factors to be isolated in single-factor smart beta ETFs and it is prominent in multi-factor ETFs as well. Investors looking for pure value exposure via ETFs have plenty of options to choose from, including the iShares MSCI USA Value Factor ETF (NYSEArca: VLUE).
“Value investing is about finding bargains—companies with low prices relative to their peers. Over the long run, companies with low prices relative to fundamentals have tended to outperform the market,” said BlackRock in a recent note. “This makes value an investment factor—a broad, historically rewarded driver of returns.”
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, especially as the U.S. equities market moves toward the ninth year of an extended bull run.