After a phenomenal year for growth stocks, investors may be rotating back into value and related exchange traded funds to diversify away from potentially pricey equities.
“Given how strong a bull market we have had, there will be an inevitable rotation to value,” Todd Rosenbluth, director of ETF and mutual fund research at independent advisory firm CFRA, told Reuters. “In fact, value has already showing signs of improvement.”
For example, TMW Funds’ Deep Value ETF (NYSE: DVP), which contains among its top 10 holdings a number of companies that have been beaten down, such as retailers Macy’s, Target, Kohls and Gap. Furthermore, the fund includes some known tech names like Seagate Technology and Xerox, along with pharma play Gilead Sciences.
Due to its indexing methodology, DVP shows a an average price-to-earnings ratio of around 13, whereas the S&P 500’s collective P/E is hovering over 25.
While DVP may only hold 20 components and is filled with some less popular company stocks, the deep value-oriented ETF has exhibited a strong performance with diminished risk to a potentially frothy market environment. Over the past year, DVP rose 24.6%, whereas the S&P 500 gained 23.3%.