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Zacks Investment Ideas feature highlights: S&P 500 Pure Value ETF, PowerShares, SPDR S&P 600 Small Cap Value ETF, SPDR S&P 600 Small Cap Growth ETF, iShares Morningstar Small Cap Value ETF

Zacks Equity Research

For Immediate Release

Chicago, IL – March 10, 2017 – Today, Zacks Investment Ideas feature highlights Features: S&P 500 Pure Value ETF (NYSEARCA: RPV – Free Report ), PowerShares (NASDAQ: PNQI – Free Report ), SPDR S&P 600 Small Cap Value ETF (NYSEARCA: SLYV – Free Report ) for value and SPDR S&P 600 Small Cap Growth ETF (NYSEARCA: SLYG – Free Report ) and iShares Morningstar Small Cap Value ETF (NYSEARCA: JKL – Free Report ).

Best Performing ETFs of the Bull Rally May Surprise You

Eight years ago, the S&P 500 hit its Great Recession closing low, and since then, equities around the globe have been soaring. In fact, an S&P 500 investment on March 10th 2009 of $10,000 would have been worth over $40,000 today if you had been reinvesting dividends (according to data from Morningstar).

But what were the best performing funds in this time frame? High-flying biotechs? Microcap stocks with big growth potential? Actually, among the best performers were value-focused funds. In particular, the most value-centric products of all were the leaders.

Pure Value

Of the top ten unleveraged ETFs since the bull market began, three are actually ‘pure value’ funds from Guggenheim. Guggenheim’s entrants in this market include the S&P 500 Pure Value ETF (NYSEARCA: RPV – Free Report ) at number one overall. In fact, RPV has turned a $10,000 investment into over $73,000 since the start of the bull market run over the past eight years, crushing a ‘standard’ investment in the process.

As you can see in the chart of the top ten below, this focus on value would have also beaten the vast majority of ETFs in the market. This includes the entire world of semiconductor ETFs such as SOXX, or any REIT ETF such as VNQ as well, as these are both absent from the top ten, though they too have beaten the S&P 500 in the time frame.

And while mid-caps ‘lagged’ a bit relative to the absolute apex of the ETF world, the top performer of RPV did edge out the Internet ETFs from PowerShares (NASDAQ: PNQI – Free Report ) and the biotech world’s top entrant too. So, how did this pure value concept manage to outperform against all odds, and over the rest of the value space as well?

What’s So Different About ‘Pure’?

The Guggenheim ETFs may have been able to crush their competitors due to their more stringent methodology which looks to avoid overlap between the growth and value worlds. This is what makes the funds, according to Guggenheim at least, ‘pure’ value or ‘pure’ growth choices.

This is important because many funds in the value and growth ETF world have significant overlap between the styles, at least for many providers. By that I mean, a stock that is in the value fund might also be in the growth fund too.

We see this in SPDR’s entrants in the market; (NYSEARCA: SLYV – Free Report ) for value and (NYSEARCA: SLYG – Free Report ) for growth. Each tracks a subset of the S&P SmallCap 600 Index, and each has over 330 stocks in their funds. In other words, some stocks which are in SLYV also find their way into SLYG. Arguably, this allows less value-oriented stocks into a portfolio, though it definitely promotes diversification in the process.

Lack of Overlap

Guggenheim, on the other hand, restricts stocks to either the ‘value’ or the ‘growth’ segments for their funds. This results in just over 110 stocks going into their value-focused S&P 500 fund, and a similar amount for the growth version. And as simple math will show you, roughly half of the 500 stocks do not make it into either growth or value benchmark at all, leaving the Guggenheim funds arguably more focused on top-notch value or growth securities as a result.

This approach seems to be a key difference for the fund compared to other value ETFs, while the weighting method probably assists in the process too. That is because, for the value fund, the product will look to weight stocks by favorability in terms of Price/Book ratios, sales/price ratios, and earnings/price ratios as well. Still, we should note that Guggenheim isn’t the only one that has a more focused approach, as some of iShares’ products do as well.

In fact, the value ETF that came in second (at least as far as value ETFs alone are concerned) was the iShares Morningstar Small Cap Value ETF (NYSEARCA: JKL – Free Report ) which turned $10,000 to over $55,000 in the eight year bull. This fund, along with the Morningstar style box-focused ETF lineup, looks at indexes that put stocks into one of three buckets; value, growth, or core. So, overlap isn’t an issue here , much like with the Guggenheim lineup.

However, Morningstar’s index system puts a bit more components into a given style. JKL contains over 240 companies in its basket, and this is actually pretty comparable to what we see with their core fund and their growth fund too. This means that Morningstar looks for balance among the three styles, arguably (once again) putting a bit lower quality value stocks into the basket as a result.

So, it appears that at least for this most recent and current bull run, the more the focus was on value, the better it was for investors.

Value Isn’t Dead, It’s Thriving

Much has been made about the death of value investing in recent years, but clearly this approach still holds plenty of promise. And while some growthier segments have done pretty well—such as in the technology world with the Internet industry’s PNQI and FDN, or Biotech’s FBT—value has been an extremely strong performer over long time frames.

So, the next time someone tells you that value investing doesn’t work in today’s market, consider the top performers from the bull market run. Sure, some high-flying funds make the list, but these have been largely driven by the stunning performances from giants such as Amazon or Priceline.

A $10,000 investment in Amazon at the start of the bull market would be worth over $130,000 today, while a $10,000 investment into Priceline would be worth an astounding $220,000 right now. To think that such insane returns will happen again to either of these same companies or other large cap tech stocks, appears to be misguided. Instead, it seems as though a tried-and-true approach which focuses on the absolute best value stocks in the market could be among the best ways for investors to profit in the long-term.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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