Value stocks are experiencing a sort of renaissance.
You see, for nearly a decade they underperformed the broader market and especially momentum stocks.
It caught the old guard flat-footed whose views were rooted in the tried and true strategy.
And it wasn’t due to some change in accounting rules.
The nature of the last decade was all about transformation not seen since the ‘90s.
We moved from mass production to mass customization.
Supply chains grew lean and responsive.
Even today with a semiconductor shortage, it took the severe shock of a global pandemic to throw us out of whack. And in context, it’s not that bad.
Yet, it’s that very shortage of assets driving value stocks higher these days.
Look no further than the Vanguard Value ETF VTV.
Year-to-date, the ETF is up 16.33% vs the SPY at 15.13%. It also pays a 1.59% dividend yield compared to the SPY at 1.3%.
And that smashes the tech-heavy QQQ’s 13.01% year-to-date.
So, if you’re looking for some value-style ETFs, here are three options worth a look.
Vanguard Value ETF VTV
Vanguard’s value ETF is cheap with an expense ratio of just 0.04%.
Their value methodology looks at price to book, forward price to earnings, historic price to earnings, dividend to price, and sales to price ratio.
Holdings include both large and midcap stocks.
What’s great about this ETF is the 2.15% dividend ratio that compensates you for a bit more volatility given the 1.04 beta.
It’s worth noting that energy stocks comprise a small portion of the holdings, which reflects issues with those companies fundamentals. But, it also means that recent runs in energy won’t lift this ETF much.
iShares Select Dividend ETF DVY
Hand in hand with value investors, dividends are typically a key component of a portfolio.
The DVY ETF offers a healthy yield of 3.2%, investing in companies that have a history and expectation for dividend payouts and increases.
Unsurprisingly, utilities come in top of the list as they’re known for their payouts.
The expense ratio is a bit higher here at 0.39%. But, with a 23.29% return year-to-date, it’s hard to ignore.
iShares MSCI EAFE Value ETF EFV
Want value but think the rest of the world can outperform the U.S.?
The EFV ETF takes value from companies outside the U.S. and Canada, yet focusing on developed markets.
While there are value ETFs for emerging markets (the EEMD for example), their fortunes are often dictated by U.S. debt yields which don’t have a great outlook at the moment.
Year-to-date performance isn’t that great at 11.46% (EEMD 9.04%) is on top of a hefty expense ratio of 0.39% (EEMD at 0.5%).
But, it comes with a nice 2.94% dividend yield (EEMD at 3.99%), which helps cushion any short-term underperformance.
Our hot take
Value ETFs often use different methodologies, so review them before investing.
And don’t just go with a standard U.S. value ETF without at least looking at global equities as part of your portfolio.
Questions from your clients
- How do different ETFs assess value?
- When and where does value investing work?
- Is investing in an equal-weight index the same thing as value investing?
- Why not just buy stocks with low P/E ratios?