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A S&P 500 ETF with Targeted Exposure to Value Stocks


As the markets shift away from momentum stocks with greater emphasis on value plays, one exchange traded fund stands out for specifically targeting companies with value characteristics.

Guggenheim S&P 500 Pure Value ETF (RPV) targets the cheapest third of the S&P 500 Index and weights its holdings by the strength of their value characteristics,” according to Morningstar analyst Alex Bryan. “This style purity allows investors to add a value tilt to a diversified portfolio with a smaller investment in this fund than its peers would require.”

Specifically, RPV tracks 118 S&P 500 stocks, including Alcoa (AA) 2.4%, Berkshire Hathaway (BRK-B) 2.2% and Wellpoint (WLP) 2.1%. The ETF leans toward financials at 25.1% of the portfolio, followed by utilities at 16.9% and energy at 16.9%.

RPV’s heavier emphasis on value stocks has been a winning strategy so far. Year-to-date, RPV has been outperformed, rising 5.3%, compared to the S&P 500 index’s 2.2% gain. [Value ETFs May be the New Black]

Other value ETFs, such as the iShares S&P 500 Value ETF (IVE) ,include some blended stocks, which have weighed on the performance. IVE is up 3.1% year-to-date.

In comparison, growth stocks have fallen behind these asset styles, with the iShares S&P 500 Growth ETF (IVW) only 1.3% higher year-to-date.

Moreoever, RPV has provided a sterling long-term performance record. RPV shows a 25.7% average annualized return over the past five years, whereas the S&P 500 index returned 17.6%. [Meet the Best ETF Since the 2009 Market Bottom]

“Value stocks have historically outperformed their growth counterparts in nearly every market studied over long time horizons,” Bryan added. “When it rebalances annually in December, the fund increases its exposure to stocks that have become cheaper relative to their peers and trims its exposure to stocks that have become more expensive.”

However, investors should be aware that since RPV follows a value-weighted indexing methodology, the fund leans toward smaller companies. RPV’s market-capitalization allocations include 47.3% mid-caps, 43.0% large-caps and 9.7% mega-caps.

Investors should also know that while the value tilt does well in bullish conditions, the strategy tends to underperform during market downturns. For instance, in 2008, the S&P 500 Pure Value Index fell behind the Russell Midcap Value and S&P 500 Value indices by 9.4% and 8.7%, respectively.

Guggenheim S&P 500 Pure Value ETF


For more information on the S&P 500, visit our S&P 500 category.