U.S. Markets close in 6 hrs 19 mins

A Hidden Gem Among Value ETFs


The rotation to value stocks and exchange traded funds has been in full bloom for a good part of this year as investors have embraced steadier, more favorably valued sectors over more volatile growth fare.

“Large-cap value securities were in vogue in our opinion as investors sought out the relatively safety of large caps that had discounted valuations, with the S&P 500 Index remaining near record highs,” said S&P Capital IQ in a recent research note. [Validated Value ETFs]

Amid the rush to value ETFs, the largest funds have, predictably, remained popular, but there are other options to explore even with the S&P 500 resting at record highs. Those options include the WisdomTree LargeCap Value Fund (EZY) .

The various value ETFs on the market today, to some extent, take different roads to arrive at the same value destination. However, evaluating the subtle nuances and methodologies between value ETFs is critical in making the right choice.

EZY, which is over seven years old, tracks the WisdomTree LargeCap Value Index (WTLVI). That index emphasizes earnings quality, meaning EZY is not just a value ETF, but a fund that rivals others that are weighted by earnings or revenue. [Earnings, Revenue-Weighted ETFs]

EZY’s underlying index focuses on “Price to Earnings Ratio, Price to Sales Ratio, and Price to Book Value and 1-year change in stock price. The top 30% of companies with the highest value scores within the 1000 largest companies by market capitalization are included in the Index. Companies are weighted in the Index annually based on earnings,” according to WisdomTree.

Like rival value ETFs, EZY is heavily weighted to the financial services sector. That is EZY’s largest sector allocation at 24.4% and five bank stocks are found among the ETF’s top-10 holdings.

Although EZY features a 10.2% weight to energy stocks and ConocoPhillips (COP) is the fund’s second-largest holding, EZY is underweight energy compared to rivals such as the iShares S&P 500 Value ETF (IVE) and the Vanguard Value ETF (VTV) .

On the other hand, EZY is overweight consumer discretionary, industrial and technology stocks compared to the aforementioned rivals. Those sectors combine for 38.7% of EZY’s weight, which along with the ETF’s substantial allocation to bank stocks position the fund nicely in the event interest rates rise. [Fight Inflation With Dividend ETFs]

Consumer discretionary is the worst-performing sector in the S&P 500 this year and that has been a drag on EZY. However, it is noteworthy that the ETF is not exposed to Internet or small-cap specialty retailers that have been among the primary culprits behind the discretionary sector’s weakness. Plus, the Consumer Discretionary Select Sector SPDR (XLY) is showing signs of life with a 3.4% gain over the past month. [Positioning for a Discretionary Rebound]

EZY, which has $26.7 million in assets under management and charges 0.38%, is up 4.2% year-to-date.

WisdomTree LargeCap Value Fund