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Value Investing Set to Shine on Tax Reform: 5 Cheap ETFs
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The progress on tax reform has put value investing back in limelight as it is expected to provide a huge boost to the value stocks. This is because massive tax cuts will create an economic surge, boosting job growth in manufacturing and other sectors, increasing inflation and interest rates. Additionally, it would lead to higher earnings, increased buyback activities, and fatty dividends, prompting investors to rotate out of growth and into value stocks.
Why Value?
Value stocks have strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market. 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.
Additionally, with the passing of the Senate tax bill, the S&P 500 is seeing rough trading. The benchmark lost for the fourth straight session, marking the first such losing streak since March. Choppy trading showed up as the Senate bill differs from the tax bill passed by the House in mid-November on various fronts (read: Senate Passes Tax Bill: 5 ETFs to Buy Now).
Both are in negotiation to reconcile their respective bills before the signature from the President, which is expected by Christmas. But it has led to uncertainty in the markets raising the appeal for value investing.
As a result, investors may want to consider a nice value play in the current scenario. While looking at individual companies is certainly an option, a focus on cheap value ETFs could be a less risky way to tap the same broad trends. 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.
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 847 stocks with none holding more than 0.6% of assets. Here, Financials dominates the portfolio at 30.5%, followed by industrials (20.6%) and consumer services (10.4%). The ETF is popular with AUM of $12.5 billion and trades in a good average daily volume of about 290,000 shares. It charges 7 bps in fees per year (read: Small Cap ETFs Surge as House Passes Tax Bill).
This fund provides broad exposure to large-cap U.S. stocks that exhibit value style characteristics. It tracks the Dow Jones U.S. Large Cap Total Stock Market Index, holding 357 stocks in its basket with each accounting for less than 5% 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 $4 billion and trades in volume of more than 231,000 shares a day on average. It charges an expense ratio of 0.04%.
This ETF offers pure exposure to the large-cap value segment of the U.S. equity market by tracking the S&P 500 Pure Value Index. Holding 350 stocks in its basket, it is well spread out across components with none holding more than 3.8% share. The fund is slightly tilted toward financials at 28.5% while healthcare, consumer staples and energy round off the next three spots with a double-digit exposure each. It has amassed $508 million in its asset base and trades in a moderate average daily volume of 97,000 shares. It charges 4 bps in annual fees (read: 5 Incredible ETFs & Stocks to Buy On the Dips).
This product tracks the CRSP US Mega Cap Value Index, holding 151 stocks in its basket. It is skewed toward the top firm – Microsoft (MSFT) – at 6.4% while other firms do not account for more than 3.8% of assets. With AUM of $1.9 billion, the ETF is also tilted toward financials at 26.1% while healthcare, technology and industrial round off the top four. Expense ratio is 0.07% while average daily volume is light at 53,000 shares.
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 $35.6 billion and an expense ratio of 0.06%, VTV trades in a solid volume of around 1.2 million shares per day on average. The product holds 331 stocks, which are well spread across each component as none of these holds more than 5.4% share. Here again, financials takes the top spot with one-fourth share while technology, healthcare, and industrials round off to the next three spots with a double-digit allocation each.
Bottom Line
Value ETFs seek to outperform when Trump’s tax reform plan comes into effect. 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 heading into the New Year.
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Value Investing Set to Shine on Tax Reform: 5 Cheap ETFs
The progress on tax reform has put value investing back in limelight as it is expected to provide a huge boost to the value stocks. This is because massive tax cuts will create an economic surge, boosting job growth in manufacturing and other sectors, increasing inflation and interest rates. Additionally, it would lead to higher earnings, increased buyback activities, and fatty dividends, prompting investors to rotate out of growth and into value stocks.
Why Value?
Value stocks have strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market. 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.
Additionally, with the passing of the Senate tax bill, the S&P 500 is seeing rough trading. The benchmark lost for the fourth straight session, marking the first such losing streak since March. Choppy trading showed up as the Senate bill differs from the tax bill passed by the House in mid-November on various fronts (read: Senate Passes Tax Bill: 5 ETFs to Buy Now).
Both are in negotiation to reconcile their respective bills before the signature from the President, which is expected by Christmas. But it has led to uncertainty in the markets raising the appeal for value investing.
As a result, investors may want to consider a nice value play in the current scenario. While looking at individual companies is certainly an option, a focus on cheap value ETFs could be a less risky way to tap the same broad trends. 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.
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 847 stocks with none holding more than 0.6% of assets. Here, Financials dominates the portfolio at 30.5%, followed by industrials (20.6%) and consumer services (10.4%). The ETF is popular with AUM of $12.5 billion and trades in a good average daily volume of about 290,000 shares. It charges 7 bps in fees per year (read: Small Cap ETFs Surge as House Passes Tax Bill).
Schwab U.S. Large-Cap Value ETF (SCHV - Free Report)
This fund provides broad exposure to large-cap U.S. stocks that exhibit value style characteristics. It tracks the Dow Jones U.S. Large Cap Total Stock Market Index, holding 357 stocks in its basket with each accounting for less than 5% 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 $4 billion and trades in volume of more than 231,000 shares a day on average. It charges an expense ratio of 0.04%.
SPDR S&P 500 Value ETF (SPYV - Free Report)
This ETF offers pure exposure to the large-cap value segment of the U.S. equity market by tracking the S&P 500 Pure Value Index. Holding 350 stocks in its basket, it is well spread out across components with none holding more than 3.8% share. The fund is slightly tilted toward financials at 28.5% while healthcare, consumer staples and energy round off the next three spots with a double-digit exposure each. It has amassed $508 million in its asset base and trades in a moderate average daily volume of 97,000 shares. It charges 4 bps in annual fees (read: 5 Incredible ETFs & Stocks to Buy On the Dips).
Vanguard Mega Cap Value ETF (MGV - Free Report)
This product tracks the CRSP US Mega Cap Value Index, holding 151 stocks in its basket. It is skewed toward the top firm – Microsoft (MSFT) – at 6.4% while other firms do not account for more than 3.8% of assets. With AUM of $1.9 billion, the ETF is also tilted toward financials at 26.1% while healthcare, technology and industrial round off the top four. Expense ratio is 0.07% while average daily volume is light at 53,000 shares.
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 $35.6 billion and an expense ratio of 0.06%, VTV trades in a solid volume of around 1.2 million shares per day on average. The product holds 331 stocks, which are well spread across each component as none of these holds more than 5.4% share. Here again, financials takes the top spot with one-fourth share while technology, healthcare, and industrials round off to the next three spots with a double-digit allocation each.
Bottom Line
Value ETFs seek to outperform when Trump’s tax reform plan comes into effect. 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 heading into the New Year.
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 >>