ETFs to buy for value, not growth.
The volatile market continues, with coronavirus fears around the globe roiling stocks of all shapes and sizes. Value investments could be a wise idea, then, for investors concerned about volatility or worried the roughly 10-year-old bull market is running out of gas. Unlike growth stocks that find favor with traders thanks to impressive expansion in sales and profits, value plays are investments with clear intrinsic worth -- even if they may not set the world on fire with new ideas or products. Here are nine of the best value stock exchange-traded funds to consider.
SPDR Portfolio S&P 500 Value ETF (SPYV)
As the ticker symbol implies, this value ETF is a twist on the massively popular SPDR S&P 500 ETF (SPY). Instead of the full list of S&P 500 index components, this ETF is centered on 400-some stocks that exhibit the strongest value characteristics. In other words, it kicks out the bottom 100 stocks or so based on book value, price-earnings ratios and other metrics. As a result, top holdings exclude tech names like Apple (AAPL) and instead favor the likes of telecom AT&T (T) and health care giant Johnson & Johnson (JNJ).
Invesco Dynamic Large Cap Value ETF (PWV)
This Invesco value ETF puts a more aggressive filter on the fund, limiting holdings to just 50 total positions in an effort to really focus on value opportunities. The approach is similar in that this ETF provider simply applies a fixed screening process to the universe of large U.S. stocks, but the result is more money behind fewer opportunities. Current top positions include pharmaceutical giant Merck & Co. (MRK) and telecom giant Comcast corp. (CMCSA). These are representative of the slow-and-steady companies that tend to make up this and other value stock ETFs.
iShares Russell Mid-Cap Value ETF (IWS)
You can argue that it's highly unlikely that investors are undervaluing the largest and most widely held names on Wall Street. How do you find a bargain in a stock that is so closely watched, and how can you claim it's not priced accurately by the market? Some investors, then, like to gravitate toward smaller value plays. That's exactly what this iShares value ETF does by focusing only on midsized corporations such as regional utility Consolidated Edison (ED) or grocery store chain Kroger Co. (KR) instead of the mega-cap stocks that are more popular.
Vanguard Small-Cap Value ETF (VBR)
If you really want to get off the beaten trail with a value ETF then there's the VBR fund with components you may not know, including insurer WellCare Health Plans (WCG) and pipeline company Atmos Energy (ATO) among others. The challenge here is that the smaller you go, the more risk you take on. These companies may indeed rate favorably on value metrics but they typically don't have the deep pockets or access to capital of larger firms. Still, as an ETF with more than 850 holdings that feature a median market cap of only about $4 billion, the diversification of this fund may smooth out the volatility of individual member stocks.
Utilities Select Sector SPDR ETF (XLU)
Instead of slicing up the universe of value stocks by size, you can also zero in on a sector that exemplifies value characteristics. Utilities are the perfect example, since these providers are pretty close to legalized monopolies. And with a highly regulated marketplace, the chance of an upstart challenging these for-profit corporations is close to zero. The trade-off is a lack of growth. Sure, populations may get a bit larger and businesses may use a bit more power in boom times, but you won't see much wiggle other than that. The reduced volatility is a trade many investors are willing to make.
iShares MSCI EAFE Value ETF (EFV)
Value hunters should check out the interesting picks outside of the U.S. if they really want a diversified portfolio. The EFV fund fits globe-trotting investors, with a strategy that covers Europe, Australia and the Far East. It is very much focused on developed markets. The largest region of investment is Japan at 25% of the portfolio, followed by the United Kingdom at 20%. Top stocks are familiar value plays including bank HSBC Holdings (HSBC) and automaker Toyota Motor Corp. (TM). As a result, this ETF helps add an international flavor to your portfolio without the volatility risk of emerging market funds.
Cambria Global Value ETF (GVAL)
If you think there's value overseas, however, then why even worry about geography and simply select the stocks that have the most intrinsic worth and the best metrics? That's the philosophy behind this Cambria fund, which can span up to 45 different countries based on where the opportunity is. At present, holdings include familiar names like Brazilian metals giant Vale (VALE) and off-the-beaten-path picks including Russian energy stock Gazprom that aren't easily purchased by U.S. investors. That allows a truly comprehensive approach to value investing in a much easier way than picking individual stocks yourself.
iShares Edge MSCI USA Value Factor ETF (VLUE)
This iShares fund offers a slightly different approach to value stock ETFs in that it is focused on the U.S. market but only has about 150 stocks that are midsized, large-cap and mega-cap. That makes for a portfolio that includes tech giant Intel Corp. (INTC) as well as midsized hospitality play Host Hotels & Resorts (HST). By focusing on valuation metrics instead of size, this iShares fund seeks to build its portfolio around the most undervalued opportunities in the domestic market.
Deep Value ETF (DVP)
Another fund that looks anywhere for value investments is DVP. But it's also content putting its eggs in a relatively small basket. With only 20 picks at present, asset manager Franklin Resources (BEN) and consumer tech firm HP (HPQ) represent about 13% of the portfolio between them. That focused approach can be riskier, but also can pay off if the small group of holdings do well. Remember, you are very much at the mercy of this fund's methodology. It's one thing to bet on a sector or region that rolls over, but another when a hand-picked portfolio underperforms due to its strategy.
Value ETFs to buy for stability:
-- SPDR Portfolio S&P 500 Value ETF (SPYV)
-- Invesco Dynamic Large Cap Value ETF (PWV)
-- iShares Russell Mid-Cap Value ETF (IWS)
-- Vanguard Small-Cap Value ETF (VBR)
-- Utilities Select Sector SPDR ETF (XLU)
-- iShares MSCI EAFE Value ETF (EFV)
-- Cambria Global Value ETF (GVAL)
-- iShares Edge MSCI USA Value Factor ETF (VLUE)
-- Deep Value ETF (DVP)
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