Tax Reform Could Boost Value ETFs

As has been widely documented, value stocks and the related exchange traded funds are trailing growth and momentum equivalents this year. Some market observers believe the Trump Administration’s tax reform efforts could boost the fortunes of the value factor in 2018.

Value investing is a popular long-term investment strategy. Value stocks have historically outperformed growth stocks, or companies with high earnings expectations, in almost every market over the long-haul. For instance, the MSCI USA Value Index has outperformed the MSCI USA Growth Index by an annualized 81 basis points since 1974 through September 2015.

The iShares MSCI USA Value Factor ETF (CBOE: VLUE) is a popular avenue for accessing value stocks while the Vanguard Value ETF (NYSEArca: VTV) is one of the largest smart beta ETFs of any stripe. In fact, several of the largest smart beta ETFs are value funds.

VTV follows the tracks the CRSP US Large Cap Value Index and is one of the most widely followed value ETFs. CRSP includes sales/price and historical earnings/price ratio as well as 12-month forward earnings/price ratio and dividend yield to form its value indexes.

VLUE “seeks to track the performance of an index that measures the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations, before fees and expenses,” according to iShares.