Value investing is one of Wall Street’s most popular strategies. That’s because it’s one of the most lucrative options for long-term investors. And value exchange-traded funds (ETFs) allow investors to buy a basket of value stocks with a single investment, offering diversification and reducing risks. With 73 ETFs traded in the U.S. markets, value ETFs have $328.54 billion in total assets under management. These funds’ average expense ratio is 0.34%.
While growth investing proved to be more profitable than value investing over the past decade, the current, impending, economic recovery positions value stocks well to outperform their growth counterparts. That’s because the shares of many quality companies became undervalued thanks to a temporary pause in their businesses amid the worst of the COVID-19 pandemic and consequent shift in investors’ attention away from them. Now, as the economy enters a recovery phase, investors are rotating away from pricey growth stocks to quality bargains. This is evidenced by the SPDR Portfolio S&P 500 Value ETF’s (SPYV) 13.5% returns so far this year versus the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 9.1% gains.
As such, we think investing in the following value ETFs could now be rewarding: Vanguard Small-Cap Value Index Fund ETF Shares (VBR), iShares S&P 500 Value ETF (IVE), iShares Russell 2000 Value ETF (IWN), and iShares Edge MSCI USA Value Factor ETF (VLUE).
Vanguard Small-Cap Value Index Fund ETF Shares (VBR)
VBR seeks to track the performance of the CRSP U.S. Small Cap Value Index, which measures the investment return of small-capitalization value stocks. The fund offers broad diversification as it holds close to 1,000 securities in total and does not allocate more than 0.5% of the total assets to any one security.
With $23.47 billion in AUM, VBR’s top holding is Vanguard Cash Management Market Liquidity Fund, which has a 1.03% weighting in the fund, followed by IDEX Corporation (IEX) at 0.52% and VICI Properties Inc. (VICI) at 0.50%. It has an expense ratio of 0.07%, which is much lower than the category average 0.65%.
VBR pays a $2.63 annual dividend of $2.63, which yields 1.6% on the prevailing price. The ETF’s average four-year dividend yield stands 2.04%. VBR has gained 87.5% over the past year and 19.3% year-to-date.
VBR has an A rating overall, which equates to Strong Buy in our proprietary POWR Ratings system. It also has an A for Trade Grade and Buy & Hold Grade.
iShares S&P 500 Value ETF (IVE)
IVE tracks the S&P 500 Value index, which is also known as the Citigroup value index. It has roughly 340 holdings and is mostly focused on companies in the financial, energy, and industrial sector. It usually tracks the performance of the large-capitalization value sector of the U.S. equity market.
Berkshire Hathaway Inc. (BRK.B) has a 3.05% weighting in the fund as its top holding, followed by JP Morgan Chase & Co. (JPM) at 2.75%, and The Walt Disney Company (DIS) at 2.01%. The fund has $22.03 billion in AUM. Its expense ratio of 0.18% compares to the category average 0.50%.
IVE pays $2.89 annually in dividends to its investors, which yields 2.01%. Its average four-year dividend yield stands at 2.40%. Over the past year, the fund has gained 43.9%. It has also gained 10.8% over the past three months.
It’s no surprise that IVE has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. It has an A for Trade Grade and Buy & Hold Grade. Click here to access IVE’s ratings for Peer Grade as well.
IVE is ranked #6 of 84 ETFs in the Large Cap Value ETFs group.
iShares Russell 2000 Value ETF (IWN)
IWN tracks the investment results of the Russell 2000 Value Index, which measures the performance of the small-capitalization value sector of the U.S. equity market. It also offers broad diversification and has a competitive fee.
The fund has $16.34 billion in AUM. Its top holdings include Darling Ingredients Inc. (DAR), with a 0.79% weighting in the fund, Novavax, Inc. (NVAX) at 0.68% and GameStop Corporation (GME) with 0.64%. The fund’s 0.24% expense ratio is lower than the category average of 0.65%.
The fund pays an annual dividend of $2.05, which yields 1.31% at the prevailing share price. Its average four-year dividend yield stands at 1.93%. The fund has gained 94.2% over the past year and 49.6% over the past six months.
IWN’s POWR Ratings are consistent with its growth outlook. It has an A rating overall, which equates to Strong Buy in our proprietary POWR Ratings system. It has an A for Trade Grade and Buy & Hold Grade. Click here to see IWN’s rating for Peer Grade as well.
IWN is ranked #2 in the Small-cap Value ETFs group.
iShares Edge MSCI USA Value Factor ETF (VLUE)
VLUE seeks to track the investment results of the MSCI USA Enhanced Value Index, which is composed of large and mid-cap U.S. equities with value characteristics and relatively lower valuations. It also mitigates persistent sector biases, which value indexes typically have.
With AUM of $14.38 billion, its top holding, Intel Corporation (INTC), accounts for 7.91% of the fund, followed by AT&T Inc. (T) at 6.53% and Micron Technology, Inc. (MU) at 4.06%. Its expense ratio of 0.15% compares to the category average of 0.35%.
VLUE pays an annual dividend of $1.88, which yields 1.82% at the prevailing share price. VLUE’s four-year average dividend yield is 2.53%. It has gained 61.8% over the past year and 20.3% so far this year.
VLUE has an A overall rating, which equates to Strong Buy in our proprietary POWR Ratings system. It also has an A for Trade Grade and Buy & Hold Grade. In addition to this, one can check out additional VLUE ratings for Peer Grade here.
VLUE is ranked #9 in the Large Cap Value ETFs group.
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VBR shares were trading at $170.26 per share on Thursday afternoon, up $0.58 (+0.34%). Year-to-date, VBR has gained 20.20%, versus a 11.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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