The value factor is outpacing growth so far in 2021. Add momentum to the mix to get funds like the First Trust Dorsey Wright Momentum & Value ETF (DVLU).
DVLU seeks investment results that correspond generally to the price and yield of an index called the Dorsey Wright Momentum Plus Value Index. The fund uses an indexing investment approach to replicate the performance of the Index.
As of April 28, DVLU is skewed towards the financial and consumer discretionary sectors. Both sectors comprise about three-fourths of the fund’s net assets.
Pop the hood of DVLU and casual investors might not easily identify names like Unum Group or PVH Corp. DVLU’s strategy delves deeply into undervalued names in the large- to mid-cap equities universe using a fundamental approach via four metrics: price-to-sales ratio, price-to-book ratio, price-to-earnings ratio, and price-to-cash flow ratio.
The fund’s strategy also looks for equities that are experiencing strong relative strength. Investors familiar with momentum understand that when it gets going, it’s hard to stop.
“Each security is assigned a percentile rank for each of the four metrics listed above, and a cumulative value score is then calculated for each security by averaging the percentile scores for each of the value metrics,” the First Trust website noted. “The securities are then ranked based upon their value scores, and the top 50 securities with the highest value scores are selected for inclusion in the index.”
“The securities are then weighted, with greater weights given to securities with higher value scores,” the website added.
Value and Momentum: A Dynamic Duo
Value paired with momentum can make for strong gains when compared to the S&P 500 Value index and the S&P 500 momentum index. So far this year, DVLU is up over 30%, outpacing both the S&P 500 value and momentum indices in 2021.
The same outperformance is shown when looking at the performances of DVLU and the indexes over the past 12 months. In fact, the disparity in performance almost doubles.
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