Amid a volatile October for U.S. stocks, investors are considering ways to skirt that volatility. Value stocks and the related ETFs could be valid ideas for those looking to avoid additional market turbulence.
Conventional wisdom dictates that, over the long-term, value stocks outperform. Well, the length of the current bull market in U.S. stocks qualifies as “long-term,” and for much of this move higher, value stocks have been trailing their growth counterparts.
Popular value ETFs include the iShares MSCI USA Value Factor ETF (Cboe: VLUE). 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.
“Value stocks are favored for their low valuations with an emphasis on consistent earnings and high dividend yields. The opposite approach, growth investing, focuses on future potential, and investors often pay a high premium to the rest of the market,” reports CNBC.
Another popular value ETF is the iShares S&P 500 Value ETF (NYSEArca: IVE). IVE tracks the S&P 500 Value Index.
“The IVE value ETF is expected to post earnings growth in fiscal 2018 more than double that of a year earlier as tax cuts fatten up the bottom line. ETF components such as AT&T and Ford have already reported earnings beats,” according to CNBC.
Value Vindication
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.
“If you look at the value ETF IVE and you look at the individual stocks in the IVE and the estimates that are being forecasted, it seems like there’s actually tremendous upside for the value ETF even from here,” said Chantico Global CEO Gina Sanchez in an interview with CNBC.
IVE and VLUE have performed slightly less poorly than the S&P 500 this month.
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