The value factor is lagging growth and momentum this year, but some value ETFs are delivering solid performances.
One example is the Schwab U.S. Large-Cap Value ETF (NYSEArca: SCHV), which is up 9.5% year-to-date and resides near record highs.
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.
“For perspective, the S&P 500 is currently trading at a price to earnings (P/E) ratio over 25, which is above its mean of 15. This means the market’s valuation is getting stretched, even if it is for good reasons like a growing economy, which we currently have. By comparison, SCHV has a current P/E of just over 19,” according to a Seeking Alpha analysis of SCHV.
One of the reasons SCHV is inexpensive relative to broader benchmarks is its large positions in financial services stocks, one of a small amount of sectors in the U.S. trading at noticeable discounts to long-term averages. Financials are 20.1% of SCHV’s weight, the ETF’s largest sector allocation.