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%.
The Guggenheim S&P 500 Pure Value ETF (NYSEArca: RPV) is another great value play that focuses on the S&P 500 and comes up with 114 pure value plays, with exposure to companies like CenturyLink, Warren Buffett’s Berkshire Hathaway, Archer Daniels Midland Co and General Motors Co.
“Since we’ve been in a market where growth has outperformed, many investors are now looking at value’s relative appeal,” William Belden, Guggenheim’s director of ETF development, told Reuters. “And over time, a value tilt tends to outperform its growth peers.”
Investors worried about concentration risk may consider broader plays, such as the Vanguard Value ETF (NYSEArca: VTV), one of the largest value ETF plays on the market. The fund includes 329 components and has generated an average annualized 15.2% return over the five years. The ETF also includes many familiar names, such as Microsoft Corp, Johnson & Johnson, JP Morgan Chase & Co and Exxon Mobil Corp.
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