3 Best-In-Class ETFs For Value Investors
It can take time to uncover attractive value stocks. That's why some investors opt for a strategy of investing in exchange-traded funds (ETFs) that sp...
Value investors look to profit from stocks that are trading far below their intrinsic value. While the concept is simple, the time that it takes to uncover these stocks can be extensive. That’s why some investors opt for a strategy of investing in exchange-traded funds (ETFs) that specifically invest in value stocks.
As with any ETF, value ETFs provide investors with the benefit of diversification. The value stocks that the fund managers choose will encompass either a range of sectors or a variety of companies within a particular sector. However, as is also true for all ETFs, investors can choose to focus on specific areas such as large-cap, mid-cap, or even small-cap stocks within a particular ETF.
In fact, Andrea Bevis, senior vice president, UBS Private Wealth Management, believes that the next leg of the rally in equities will come from value stocks including small and mid-cap market segments.
The list of value ETFs is extensive, but here is a quick look at three value ETFs that are among the best in class for large-cap, mid-cap, and small-cap value investors.
For Large-Cap Focus: Vanguard Value ETF (VTV)
If you’re looking for a value-oriented ETF with a large-cap focus it’s tough to beat the Vanguard Value ETF (NYSEARCA:VTV). For starters, it’s one of the largest value ETFs that currently holds around $25 billion in assets. It’s also one of the least expensive coming in at just 4 basis points (one basis point equals one one-hundredth of a percent).
Approximately 62% of the funds holdings are in large-cap stocks. The greatest sector by weight is financials which are traditionally thought of as value stocks. However, if diversification is an important feature of an ETF, the Vanguard Value ETF is an obvious choice. A signature feature of the fund is that is never too concentrated (or top-heavy) on one particular stock. The fund’s methodology uses common metrics such as price-to-book (P/B), historic price-to-earnings (P/E), forward price-to-earnings (forward P/E), price-to-dividend (P/D) and price-to-sales (P/S).
For Mid-Cap Focus: iShares Russell Mid-Cap Value (IWS)
The iShares family of product is known for offering market-beating performance at a low cost. The iShares Russell Mid-Cap Value ETF (NYSEARCA:IWS) is comprised of 700 U.S. mid-cap stocks. In general, the funds methodology seeks stocks with a lower price-to-book metric than its peers.
Mid-cap stocks are attractive to investors because in many cases they provide better growth potential than a mature, large-cap stock. However, they also have more access to capital than small-cap stocks.
Like any value ETF, financial and industrial stocks make up about a third of the fund’s weighting. However, it also provides a bit more exposure to areas such as real estate than you would find in a large-cap ETF.
For Small-Cap Focus: SPDR S&P 600 Small Cap Value ETF (SLYV)
When it comes to allocating part of your value portfolio to small-cap stocks, beauty is in the eye of the beholder. But if you’re willing to consider these companies (which typically have a market cap between $600 million and $2.4 billion, than the SPDR S&P 600 Small-Cap Value ETF (NYSEARCA:SLYV) deserves strong consideration. The fund is up 32% in 2021.
One trade-off of this ETF is that the universe of value-oriented small-cap stocks is smaller. That is reflected in the fund’s weighting which is heavily skewed toward financial stocks. However, no single holding accounts for more than 1% of the fund’s assets.
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