For Immediate Release
Chicago, IL- October 14, 2014 – Today, Zacks Investment Ideas feature highlights Features: iShares S&P 500 Value ETF (IVE-Free Report), PowerShares Dynamic Large Cap Value Portfolio (PWV-Free Report), Vanguard Mega Cap Value ETF (MGV-Free Report) and iShares Morningstar Large Cap Value ETF (JKF-Free Report).
Value ETFs to Buy After Market Selloff
The stock market’s wild gyrations last week suggest that the lack of volatility seen earlier this year may now be a thing of the past. Some investors fear that last week's sell-off could mark the start of a broader stock market correction (more than 10% decline for the S&P 500) not seen in last three years. But many others believe that it has created an attractive buying opportunity for long-term investors.
FOMC minutes released last week showed that the Fed is no hurry to raise rates. Many committee members expressed concern that slowdown in overseas markets—Europe, Japan and China in particular—could impact the domestic economy. Further, they were also worried that the recent strength in the US dollar could hurt US exports. (Read: Healthcare ETFs for your portfolio’s wellness)
The dovish tone of the minutes sent stocks surging to register their biggest daily gain in 2014 but those gains were rather short-lived. The very next day, major stock indexes saw their worst decline of the year as once again global slowdown worries prevailed.
While the shorter-term outlook for stocks is a bit cloudy now; I believe that the longer-term outlook remains positive. Here are some reasons why stocks may bounce back:
1) The fed is still your friend—low interest rates are good for companies as well as for households;
2) US corporate health has been improving and companies are producing record earnings;
3) While many other regions in the world continue to struggle, US economic picture has been brightening;
4) Tumbling oil prices are adding to the nervousness now but they will boost the economic prospects in the longer term;
5) Stocks still remain more attractive compared to most other major asset classes.
At the same time, there is no dearth of bad news for the market—from European slowdown to Ebola outbreak—but I think the recent fears appear to be overblown. (Read: 3 Low Risk ETFs for an uncertain market)
At the same time, it is possible that the pain in high-beta names may continue for some time, given risk-off sentiment prevailing as of now. Some of these “glamorous” corners of the market may look enticing after the recent sell-off, but it now seems it would be safer to focus on big, boring and stable companies with attractive valuations. In a volatile market environment, growth stocks remain more vulnerable and prone to further declines.
Further in the past, strong bull markets have usually been led by growth stocks while value stocks have outperformed during periods of muted market performance. History also suggests that value stocks tend to perform well later in the economic cycle.
Also, given their proven performance over long term, value stocks and funds should be a predominant part of any ‘core’ portfolio. Below, we have analyzed these value ETFs that look most attractive in terms of valuation (P/E) compared to the broader iShares S&P 500 Value ETF (IVE-Free Report) and would make excellent holdings for a long-term portfolio.
PowerShares Dynamic Large Cap Value Portfolio (PWV-Free Report)
PWV is based on the “Dynamic Large Cap Value Intellidex" Index that seeks to provide capital appreciation while maintaining value exposure. The index applies a 10 factor style isolation process.
After the initial value screen, the fund evaluates stocks on additional dimensions including price momentum, earnings momentum, quality and management action.
The product holds $882 million in assets, invested in 50 securities. Financials, Information Technology, Energy and Healthcare occupy the top four spots for sector exposure.
It charges an expense ratio of 57 basis points. With its consistent outperformance over other broader large cap value ETFs, with less volatility, this ETF has justified its slightly higher fee.
Vanguard Mega Cap Value ETF (MGV-Free Report)
MGV tracks the CRSP US Mega Cap Value Index. The fund holds just 160 ultra-large cap value stocks. Very well-known value companies like Exxon, Microsoft, J&J, Wells Fargo and GE are among the top holdings. Top ten holdings account for about 31% of the portfolio. (Read: 3 Mega Cap ETFs Beating the Market)
The product charges a low expense ratio of just 11 basis points.
iShares Morningstar Large Cap Value ETF (JKF-Free Report)
JKF provides targeted exposure to undervalued large-cap US companies. It holds 81 companies with Exxon, GE and Wells Fargo being the top three holdings. Financials, Energy, Healthcare and Technology are the top sectors in terms of allocations.
The fund charges an expense ratio of 25 basis points and has an excellent dividend yield of 2.63% currently.
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For Immediate Release