Tide Turning For Value ETFs Vs. Growth

The time may be right to pay closer attention to value equity ETFs. Among the many investment ideas circulating in the market in the early post-election days, value versus growth seems to be one that’s gaining a following.

Consider the recent performance of the Vanguard Value Index Fund (VTV) and the Vanguard Growth Index Fund (VUG). In the past one month, there’s been a jump in the performance of value stocks:

“If the initial reaction [to the election] can carry through, a shift from a growth tilt to a value tilt may be in order,” Clayton Fresk, portfolio manager at Stadion Money Management, told ETF.com.

“Looking past the bear market and recovery, this relationship has steadily favored growth since 2009,” he added. “However, that relationship has trended in favor of value since the beginning of 2016, and it has really spiked since the Trump election.”

Here’s what that value-versus-growth performance looks like in the past three years:

The reason for that performance in value names has a lot to do with sector exposures, Fresk says. In the case of value names, the “relative overweight” to financials and underweight to technology and consumer discretionary are what’s driving the recent performance.

In the past month, financials has been the best-performing S&P 500 sector, rallying more than 13%, or roughly twice the rally seen in the second-best-performing sector in the period—industrials. Technology, meanwhile, has been in the redin the past 30 days, sliding 0.4% in a month.

Source: Sector SPDRs

19 Large-Cap Value ETFs

Among large-cap equity ETFs, there are 19 value ETFs to choose from that are commanding more than $78 billion in combined assets. At least six of these funds have at least $1 billion in assets, are large, liquid and well-established funds:

• iShares Russell 1000 Value ETF (IWD) has $32.8 billion in assets. It costs 0.20% in expense ratio—the biggest and oldest in the segment.
• Vanguard Value Index Fund (VTV) has $25.2 billion in assets. It costs 0.08% in expense ratio.
• iShares S&P 500 Value ETF (IVE) has $11.5 billion in assets. It costs 0.18% in expense ratio.
• Schwab U.S. Large-Cap Value ETF (SCHV) has $2.6 billion in assets. It costs 0.06% in expense ratio—the cheapest in the segment.
• Vanguard Mega Cap Value Index Fund (MGV) has $1.4 billion in assets. It costs 0.09% in expense ratio.
• PowerShares Dynamic Large Cap Value Portfolio (PWV) has $1.1 billion in assets. It costs 0.57% in expense ratio.

But the segment is known for offering investors a diverse lineup of approaches to owning value names. Consider that Vanguard alone offers four different U.S. large-cap value ETFs, VTV being the largest of them.

There are the market-cap-weighted, vanilla takes on the segment that include the likes of VTV, MGV and IWD. They are all liquid, and relatively cheap to own.

More Complex Value Strategies

But among the top strategies, PWV, for instance, picks securities based on a 10-factor process, and weights them using a tiered scheme—one that often lends the portfolio a tilt toward tech names, according to our database. And as would be expected, the more complex strategies tend to cost more. PWV has an expense ratio that’s more than seven times that of VTV.

There are also strategies that aren’t vanilla at all, opting instead for alternative weighting schemes or even active management. Consider the three funds below:

• The First Trust Large Cap Value AlphaDex Fund (FTA) is a quant-based methodology that tends to tilt toward midcap names. FTA selects and weights S&P 500 value stocks based on fundamental factors including sales, book value and cash flows. The fund has $888 million in assets and comes with a 0.62% expense ratio.
• The Guggenheim S&P 500 Pure Value ETF (RPV) tracks a pure value index that relies on several style scores. It costs only 0.35% in expense ratio and has $804 million in assets.
• The SPDR MFS Systematic Value Equity ETF (SYV) is the actively managed fund in the group. With only $2.82 million in assets, and costing a hefty 0.60% in expense ratio—among the highest in the segment—SYV’s portfolio manager uses fundamental and quantitative models to pick undervalued stocks in an effort to beat the Russell 1000 Value Index.

These different flavors of value strategies deliver very different returns, as the year-to-date chart shows:

Charts courtesy of StockCharts.com

For a comprehensive list of value ETFs covering all market capitalization, check out our ETF.com Value ETF Channel.

Contact Cinthia Murphy at [email protected]