The value factor is lagging its growth and momentum rivals this year, but that does not mean investors should ignore some ETFs dedicated to value stocks.
Investors interested in revisiting the value factor have a bevy of ETFs to consider, including the Guggenheim S&P 500 Pure Value ETF (NYSEArca: RPV).
Value stocks have historically outperformed growth stocks, or companies with high earnings expectations, in almost every market over longer periods. In their attempts to better measure market returns, Eugene Fama and Kenneth French, both professors at the University of Chicago Booth School of Business, have found that value outperformed growth stocks and small-caps tend to outperform large-caps over the long-term as outlined in their Fama-French Three-Factor Model.
RPV focuses on S&P 500 companies that exhibit the value trait. That ETF tracks the S&P 500 Pure Value Index, which “ensures value in separate dimensions across three risk factors: book value to price ratio, earnings to price ratio, and sales to price ratio. The Pure Style Value Index Series only includes those stocks from the parent index that exhibit strong value characteristics, and weights them by style score,” according to Guggenheim.
“Another feature of the RPV portfolio is that it weights holdings according to the highest value scores. This creates a stronger influence of larger and more stable companies such as Berkshire Hathaway Inc (BRK/B) and Centene Corp (CNC),” reports ETF Daily News.
Another value ETF to consider is the ValueShares U.S. Quantitative Value ETF (BATS: QVAL). QVAL is managed by Dr. Wesley Gray, a U.S. Marine Corps veteran with a Ph.D. from the University of Chicago where studied under Nobel Prize winner, Eugene Fama. QVAL pursues its investment objective by investing primarily in U.S. equity securities the advisor believes to be the cheapest, highest-quality value stocks in the market.
Related: Smart Beta ETFs Don’t Have to Be Complex to Do Their Job
The value play may be seen as a basic type of enhanced or smart beta ETF strategy that specifically targets value stocks that tend to trade at a lower price relative to fundamentals, like dividends, earnings and sales. Along with the simple pure value play, such as RPV and QVAL, the other value-focused ETFs may also incorporate other factors in their screening process.
QVAL has “ust 40 holdings that are roughly equal weighted in the portfolio structure. This allows for each stock to have a similar contribution to the total return of the fund rather than giving larger companies the lion’s share of the assets,” according to ETF Daily News.
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