So far this year, these five funds have delivered very different returns, as the chart below shows:
Charts courtesy of StockCharts.com
How The Funds Differ
iShares Edge MSCI USA Value Factor ETF (VLUE)
VLUE had an index change in 2015, one that “sharpened” the fund’s focus on value stocks, according to VLUE’s ETF.com fund report.
In this fund, stocks are selected and weighted using fundamental metrics including earnings, revenue, book value and cash earnings, with the goal of picking undervalued stocks in each sector. What’s novel here is the focus on sector as well. VLUE’s new index specifically looks for value within each sector, “taking into account that price-to-book for a typical tech stock may be much higher than that of a financial stock,” the ETF.com funds report says.
Technology is the biggest sector allocation, at about 21% of the mix, followed by consumer discretionary and financials. The fund costs 0.15% in expense ratio, and trades with an average spread of 0.10%, putting total cost of ownership at about $25 per $10,000 invested. It has $668 million in total assets.
iShares Core U.S. Value ETF (IUSV)
IUSV is much broader than VLUE, with nearly 2,000 stocks across all market capitalization. The fund tracks an index that selects from stocks ranked 1-3,000 by market cap based on a multifactor methodology.
According to IUSV’s ETF.com fund report, which ranks this fund as the “analyst pick” for the segment, IUSV offers “classic” exposure to the value factor. It does, however, tilt slightly toward growth—with higher price to earnings and lower dividend yield—but it’s a cheap and easy to trade value fund.
Financials are the fund’s biggest sector allocation, at about 30%. IUSV, with $834 million in total assets, costs 0.07% in expense ratio and trades with an average spread of 0.13%, costing investors about $20 per $10,000 invested to own.
First Trust Multi Cap Value AlphaDex Fund (FAB)
FAB takes a quant approach to outperforming the S&P 1500 Value Index through a methodology that uses fundamental factors to select and weight value stocks from that broad index.
The multifactor approach and tiered weighting translates into a portfolio that offers exposure to stocks with P/E and P/B ratios lower than most, and so far this year, it has delivered the best total returns in this segment.
The 675-holding portfolio, which holds financials as its biggest sector exposure at about 30%, remains relatively small, at about $102 million in total assets. FAB is also not that cheap to own, with an expense ratio of 0.64% and an average trading spread of 0.27%. Total cost of ownership for the fund is about $91 per $10,000 investors—almost five times as much as IUSV.
ValueShares U.S. Quantitative Value ETF (QVAL)
QVAL is the only actively managed value ETF of the bunch. It’s also a pretty concentrated play, with only about 40 stocks in the portfolio. The selection process for value stocks is based on various screening methods that include forensic accounting, valuation and quality.
What the fund’s manager is looking for is stocks he considers to be undervalued, and showing promising capital appreciation potential. The fund, which only came to market in 2014, has already amassed $55 million, but it isn’t cheap relative to the other passive ETFs in the segment. However, it’s touted as cheaper than a comparable active mutual fund would be.
QVAL costs 0.79% in expense ratio, and trades with an average spread of 0.19%, putting total cost of ownership here at about $98 per $10,000 invested—the highest in the segment. The fund is also the worst-performing of the pack so far this year.
Consumer discretionary is currently QVAL’s largest sector allocation, at about 43% of the mix.
SPDR S&P 1500 Value Tilt ETF (VLU)
VLU is one of the veterans, having come to market in 2012, but it has hardly gotten traction—total assets under management are just over $4 million.
Still, the fund, which carries the credible SPDR brand, tracks an index that weights securities from the S&P 1500 based on five fundamental factors and market cap over the past five years. The goal is to pick stocks with lower price relative to valuations.
What’s unique about the approach in VLU is that the fund owns pretty much all of the 1,500 stocks in the S&P 1500, but it ranks the stocks based on the value metrics mentioned above, underweighting—as opposed to skipping on—the securities that aren’t value at all.
The lack of investor interest has VLU among FactSet’s list of high closure risk. The fund also struggles with liquidity, and trading spread are wide, at about 0.68% on average. Combine that with an expense ratio of 0.12%, and investors are shelling out about $80 per $10,000 invested to own it.
Contact Cinthia Murphy at [email protected].