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5 Ultra-Cheap Value ETFs to Beat the Choppy Market
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While the major bourses are scaling multiple highs thanks to a pickup in global economic activity and robust corporate earnings, bouts of volatility and uncertainty have at times crossed the path, threating the bull run. This is especially true given the rounds of weak economic data, re-emergence of political turmoil and the recent technology sell-off.
Fundamentals Getting Weak
The latest round of economic data has disappointed investors with weaker-than-expected data for job growth, inflation, retail, housing, and consumer sentiment. While the unemployment rate dropped to 4.3% (the lowest level since 2001), the economy added 138,000 jobs in May, falling short of analysts’ expectation. Both March and April job gains were also revised down by 66,000 (read: 4 ETFs Set to Gain on Dismal May Job Data).
The Consumer Price Index dipped 0.1% in May after rising 0.2% in April, taking the year-over-year inflation rate to 1.9%. This is well below the five-year high of 2.7% just four months ago. Retail sales also saw the biggest drop in 16 months, falling 0.3% last month while housing starts fell 5.5% to an annual rate of 1.09 million, the lowest level in eight months. Meanwhile, the latest consumer sentiment survey signals a halt in consumer optimism since the presidential election. Notably, the preliminary University of Michigan's Consumer Sentiment Index dropped to 94.5 in June, well below economists' expectations of 97.1.
All these indicate that confidence in the economy is continuing to fade after a slowdown in the first quarter. Further, markets are speculating that the Trump administration will continue to face hurdles in getting its tax and healthcare reforms passed by the Congress. Political uncertainty in Europe following the hung parliament in UK, growing tensions in the Gulf States, and the ongoing probe of Trump over Russia interference have added to the woes.
If these weren’t enough, the recent technology rout has made investors jittery and triggered the appeal for value investing. Here, one can bet on stocks with strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market (read: Is the Tech Rout Overstated? Buy 3 Stocks & ETFs on the Dip).
Why Value Investing?
Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows the potential for capital appreciation when the stock finally reflects its true market price.
As a result, value stocks have the potential to deliver higher returns and exhibit lower volatility compared with growth and blend counterparts. In fact, these stocks outperform the growth ones across all asset classes when considered on a long-term investment horizon and are less susceptible to trending markets.
Given this, investors may want to consider a nice value play in the current volatile market environment. While looking at individual companies is certainly an option, a focus on cheap value ETFs could be a less risky way to tap into the same broad trends (read: Expenses Matter: Dive into 7 Low Cost ETFs).
Below we have selected five value ETFs that provide exposure to the broad stock market instead of a particular sector. All these funds have a Zacks Rank #3 (Hold) with a lower expense ratio of under 10%, making them superior relative to other choices in the value space.
This fund tracks the Dow Jones U.S. Large Cap Total Stock Market Index, holding 351 stocks in its basket. None of the securities accounts for more than 4.6% of total assets. Additionally, the product is well spread out across sectors with financials, information technology, consumer staples, and healthcare accounting for double-digit exposure each. SCHV has amassed assets worth $3.5 billion and trades in volume of more than 327,000 shares a day on average. It charges an expense ratio of 0.04% and is up 6.3% so far this year (read: 5 Excellent ETFs for Your IRA).
This product tracks the S&P 900 Value and is home to 639 stocks with none of the firms making up for more than 3.34% of assets. Financials is the top sector accounting for one-fourth of the portfolio while healthcare, consumer staples, and energy get double-digit exposure each. The fund has accumulated $2.1 billion in its asset base and trades in solid volume of 358,000 shares a day on average. Expense ratio comes in at 0.05%. The ETF is up 4.7% in the year-to-date time frame.
This fund seeks to track the CRSP US Large Cap Value Index, which measures the performance of the largest U.S. value stocks. With AUM of $32 billion and an expense ratio of 0.06%, VTV trades in a solid volume of around 1.5 million shares per day on average. The product holds 332 stocks, which are well spread across each component as none of these holds more than 4.6% share. Here again, financials takes the top spot with one-fourth share while healthcare, industrials, and technology round off to the next three spots with a double-digit allocation each. The ETF has added 5.4% year to date.
The fund targets the small cap segment of the value space and follows the CRSP US Small Cap Value Index. It holds a basket of 832 stocks with none holding more than 0.6% of assets. Here also, financials dominates the portfolio at 30.2%, followed by industrials (21.1%) and consumer services (10.5%). The ETF is popular with AUM of $11.5 billion and trades in solid average daily volume of about 467,000 shares. It charges 7 bps in fees per year and has added 2.2% so far this year.
The fund tracks the CRSP US Mid Cap Value Index, which measures the return of mid-cap value stocks. It holds 205 stocks, which are well spread across each component as none of these holds more than 1.4% share. Financials again takes the top spot with one-fourth share while consumer goods, consumer services, industrials, and technology round off to the next four spots with a double-digit allocation each. It has AUM of $7.7 billion and average daily volume of around 304,000 shares. The ETF charges 7 bps in annual fee and has gained 7.3% in the year-to-date time frame (read: Buy-Ranked Mid-Cap ETFs for a Shaky Market).
Bottom Line
Value ETFs generally outperform when market performance remains subdued as we are currently seeing. As such, investors shouldn’t forget the value space and should take a closer look at a few of the attractive value ETFs in this segment for excellent exposure and some outperformance in the weeks to come.
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5 Ultra-Cheap Value ETFs to Beat the Choppy Market
While the major bourses are scaling multiple highs thanks to a pickup in global economic activity and robust corporate earnings, bouts of volatility and uncertainty have at times crossed the path, threating the bull run. This is especially true given the rounds of weak economic data, re-emergence of political turmoil and the recent technology sell-off.
Fundamentals Getting Weak
The latest round of economic data has disappointed investors with weaker-than-expected data for job growth, inflation, retail, housing, and consumer sentiment. While the unemployment rate dropped to 4.3% (the lowest level since 2001), the economy added 138,000 jobs in May, falling short of analysts’ expectation. Both March and April job gains were also revised down by 66,000 (read: 4 ETFs Set to Gain on Dismal May Job Data).
The Consumer Price Index dipped 0.1% in May after rising 0.2% in April, taking the year-over-year inflation rate to 1.9%. This is well below the five-year high of 2.7% just four months ago. Retail sales also saw the biggest drop in 16 months, falling 0.3% last month while housing starts fell 5.5% to an annual rate of 1.09 million, the lowest level in eight months. Meanwhile, the latest consumer sentiment survey signals a halt in consumer optimism since the presidential election. Notably, the preliminary University of Michigan's Consumer Sentiment Index dropped to 94.5 in June, well below economists' expectations of 97.1.
All these indicate that confidence in the economy is continuing to fade after a slowdown in the first quarter. Further, markets are speculating that the Trump administration will continue to face hurdles in getting its tax and healthcare reforms passed by the Congress. Political uncertainty in Europe following the hung parliament in UK, growing tensions in the Gulf States, and the ongoing probe of Trump over Russia interference have added to the woes.
If these weren’t enough, the recent technology rout has made investors jittery and triggered the appeal for value investing. Here, one can bet on stocks with strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market (read: Is the Tech Rout Overstated? Buy 3 Stocks & ETFs on the Dip).
Why Value Investing?
Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows the potential for capital appreciation when the stock finally reflects its true market price.
As a result, value stocks have the potential to deliver higher returns and exhibit lower volatility compared with growth and blend counterparts. In fact, these stocks outperform the growth ones across all asset classes when considered on a long-term investment horizon and are less susceptible to trending markets.
Given this, investors may want to consider a nice value play in the current volatile market environment. While looking at individual companies is certainly an option, a focus on cheap value ETFs could be a less risky way to tap into the same broad trends (read: Expenses Matter: Dive into 7 Low Cost ETFs).
Below we have selected five value ETFs that provide exposure to the broad stock market instead of a particular sector. All these funds have a Zacks Rank #3 (Hold) with a lower expense ratio of under 10%, making them superior relative to other choices in the value space.
Schwab U.S. Large-Cap Value ETF (SCHV - Free Report)
This fund tracks the Dow Jones U.S. Large Cap Total Stock Market Index, holding 351 stocks in its basket. None of the securities accounts for more than 4.6% of total assets. Additionally, the product is well spread out across sectors with financials, information technology, consumer staples, and healthcare accounting for double-digit exposure each. SCHV has amassed assets worth $3.5 billion and trades in volume of more than 327,000 shares a day on average. It charges an expense ratio of 0.04% and is up 6.3% so far this year (read: 5 Excellent ETFs for Your IRA).
iShares Core S&P U.S. Value ETF (IUSV - Free Report)
This product tracks the S&P 900 Value and is home to 639 stocks with none of the firms making up for more than 3.34% of assets. Financials is the top sector accounting for one-fourth of the portfolio while healthcare, consumer staples, and energy get double-digit exposure each. The fund has accumulated $2.1 billion in its asset base and trades in solid volume of 358,000 shares a day on average. Expense ratio comes in at 0.05%. The ETF is up 4.7% in the year-to-date time frame.
Vanguard Value ETF (VTV - Free Report)
This fund seeks to track the CRSP US Large Cap Value Index, which measures the performance of the largest U.S. value stocks. With AUM of $32 billion and an expense ratio of 0.06%, VTV trades in a solid volume of around 1.5 million shares per day on average. The product holds 332 stocks, which are well spread across each component as none of these holds more than 4.6% share. Here again, financials takes the top spot with one-fourth share while healthcare, industrials, and technology round off to the next three spots with a double-digit allocation each. The ETF has added 5.4% year to date.
Vanguard Small-Cap Value ETF (VBR - Free Report)
The fund targets the small cap segment of the value space and follows the CRSP US Small Cap Value Index. It holds a basket of 832 stocks with none holding more than 0.6% of assets. Here also, financials dominates the portfolio at 30.2%, followed by industrials (21.1%) and consumer services (10.5%). The ETF is popular with AUM of $11.5 billion and trades in solid average daily volume of about 467,000 shares. It charges 7 bps in fees per year and has added 2.2% so far this year.
Vanguard Mid-Cap Value ETF (VOE - Free Report)
The fund tracks the CRSP US Mid Cap Value Index, which measures the return of mid-cap value stocks. It holds 205 stocks, which are well spread across each component as none of these holds more than 1.4% share. Financials again takes the top spot with one-fourth share while consumer goods, consumer services, industrials, and technology round off to the next four spots with a double-digit allocation each. It has AUM of $7.7 billion and average daily volume of around 304,000 shares. The ETF charges 7 bps in annual fee and has gained 7.3% in the year-to-date time frame (read: Buy-Ranked Mid-Cap ETFs for a Shaky Market).
Bottom Line
Value ETFs generally outperform when market performance remains subdued as we are currently seeing. As such, investors shouldn’t forget the value space and should take a closer look at a few of the attractive value ETFs in this segment for excellent exposure and some outperformance in the weeks to come.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>