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Value Outperforms Growth in September: 6 ETFs to Bet On
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Wall Street logged in its worst month since March with the S&P 500 dropping 3.9%. The Dow Jones shed 2.3% while the Nasdaq Composite Index tumbled 5.2%. In fact, the Nasdaq slipped into the correction territory (down from at least 10% from the Sep 2 peak) before rebounding slightly to end the month.
The lofty valuation as well lack of another round of fiscal stimulus unnerved investors. The allegations of money laundering against big banks and rising U.S.-China tensions also added to the chaos. The sluggish trend is likely to continue given the elections, which is now just four weeks away (read: Growth or Value: Which ETFs Have an Edge Ahead of Elections?).
Value Edge Over Growth
Investors are dumping fast-growing technology companies, which had powered the bull market from the bottom reached in March, in favor of beaten-down stocks in sectors like materials, transportation and utilities. Many of these sectors had been badly beaten down by the coronavirus pandemic this year and were thus trading at attractive levels. The rotation led to the outperformance of the value stocks over the growth ones. Notably, the Russell 1000 Growth Index dropped 4.8% while the Russell 1000 Value Index was down just 2.6% in September.
Value stocks refer to those that trade below their intrinsic value. The outperformance came as value stocks are less susceptible to trending markets and their dividend payments serve as safety in times of market turbulence. These seek to capitalize on inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared to their growth and blend counterparts.
Many market participants believe the appeal for value investing will stay at least in the near term. This is especially true against the backdrop of a slowly recovering economy and the potential arrival of a coronavirus vaccine that will boost consumer spending and in turn lift value stocks. Additionally, continued antitrust scrutiny of big tech companies by the candidate who wins the election (Biden or Trump) will also weigh on growth investing. Further, value investing seems more tempting given its promise for dividend yield in a near-zero rate environment and uncertainty in the stock market ahead of elections (read: 5 High-Yield Dividend ETFs & Stocks to Buy Now).
Per the latest survey of Bank of America, value stocks are trading at a near-record discount relative to momentum stocks, or those that have risen the most over the past 12 months. A greater number of fund managers expect value to outperform growth over the next 12 months, according to the survey.
That said, investors could tap the rise in value investing with ETFs that declined less than many others in September. These funds lost not more than 4% each and have a Zacks ETF Rank #2 (Buy) or 3 (Hold).
This ETF follows the Dow Jones U.S. Large-Cap Value Total Stock Market Index, which includes the components ranked 1-750 by full market capitalization and are classified as "value" based on a number of factors. It has amassed $6.6 billion in its asset base and charges 4 bps in annual fees. The fund trades in volume of 607,000 shares a day on average and has a Zacks ETF Rank #2.
With AUM of $6.7 billion, this ETF follows the MSCI USA Enhanced Value Index, providing exposure to large- and mid-cap U.S. stocks with lower valuations based on fundamentals. It holds a basket of 149 securities and charges investors 15 bps in annual fees. VLUE trades in an avaerge daily volume of 983,000 shares and has a Zacks ETF Rank #2 (see: all the Large Cap Value ETFs here).
This ETF tracks the Dynamic Large Cap Value Intellidex Index and holds 52 stocks in its basket. It has amassed $629.8 million in its asset base and charges 55 bps in annual fees. The product trades in an average daily volume of 48,000 shares and has a Zacks ETF Rank #3.
Invesco S&P 500 Value with Momentum ETF (SPVM - Free Report)
This fund offers exposure to 102 securities in the S&P 500 Index, having the highest “value scores” and “momentum scores by tracking the S&P 500 High Momentum Value Index. It has accumulated $32.9 million in its asset base and trades in volume of 3,000 shares a day on average. The ETF charges 39 bps in annual fees and has a Zacks ETF Rank #3.
This fund seeks to track the CRSP US Large Cap Value Index, holding a basket of 349 stocks. With AUM of $50.6 billion and an expense ratio of 0.04%, it trades in a solid volume of around 1.9 million shares per day on average. The product has a Zacks ETF Rank #2 (read: 5 ETFs Shining Bright Amid September Selling).
This fund offers diversified exposure to the 151 largest value stocks in the U.S. market by tracking the CRSP US Mega Cap Value Index, charging 7 bps in fees from its investors. It has been able to manage assets worth $2.9 billion and trades in average daily volume of 178,000 shares. The product has a Zacks ETF Rank #2.
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Value Outperforms Growth in September: 6 ETFs to Bet On
Wall Street logged in its worst month since March with the S&P 500 dropping 3.9%. The Dow Jones shed 2.3% while the Nasdaq Composite Index tumbled 5.2%. In fact, the Nasdaq slipped into the correction territory (down from at least 10% from the Sep 2 peak) before rebounding slightly to end the month.
The lofty valuation as well lack of another round of fiscal stimulus unnerved investors. The allegations of money laundering against big banks and rising U.S.-China tensions also added to the chaos. The sluggish trend is likely to continue given the elections, which is now just four weeks away (read: Growth or Value: Which ETFs Have an Edge Ahead of Elections?).
Value Edge Over Growth
Investors are dumping fast-growing technology companies, which had powered the bull market from the bottom reached in March, in favor of beaten-down stocks in sectors like materials, transportation and utilities. Many of these sectors had been badly beaten down by the coronavirus pandemic this year and were thus trading at attractive levels. The rotation led to the outperformance of the value stocks over the growth ones. Notably, the Russell 1000 Growth Index dropped 4.8% while the Russell 1000 Value Index was down just 2.6% in September.
Value stocks refer to those that trade below their intrinsic value. The outperformance came as value stocks are less susceptible to trending markets and their dividend payments serve as safety in times of market turbulence. These seek to capitalize on inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared to their growth and blend counterparts.
Many market participants believe the appeal for value investing will stay at least in the near term. This is especially true against the backdrop of a slowly recovering economy and the potential arrival of a coronavirus vaccine that will boost consumer spending and in turn lift value stocks. Additionally, continued antitrust scrutiny of big tech companies by the candidate who wins the election (Biden or Trump) will also weigh on growth investing. Further, value investing seems more tempting given its promise for dividend yield in a near-zero rate environment and uncertainty in the stock market ahead of elections (read: 5 High-Yield Dividend ETFs & Stocks to Buy Now).
Per the latest survey of Bank of America, value stocks are trading at a near-record discount relative to momentum stocks, or those that have risen the most over the past 12 months. A greater number of fund managers expect value to outperform growth over the next 12 months, according to the survey.
That said, investors could tap the rise in value investing with ETFs that declined less than many others in September. These funds lost not more than 4% each and have a Zacks ETF Rank #2 (Buy) or 3 (Hold).
Schwab U.S. Large-Cap Value ETF (SCHV - Free Report)
This ETF follows the Dow Jones U.S. Large-Cap Value Total Stock Market Index, which includes the components ranked 1-750 by full market capitalization and are classified as "value" based on a number of factors. It has amassed $6.6 billion in its asset base and charges 4 bps in annual fees. The fund trades in volume of 607,000 shares a day on average and has a Zacks ETF Rank #2.
iShares Edge MSCI USA Value Factor ETF (VLUE - Free Report)
With AUM of $6.7 billion, this ETF follows the MSCI USA Enhanced Value Index, providing exposure to large- and mid-cap U.S. stocks with lower valuations based on fundamentals. It holds a basket of 149 securities and charges investors 15 bps in annual fees. VLUE trades in an avaerge daily volume of 983,000 shares and has a Zacks ETF Rank #2 (see: all the Large Cap Value ETFs here).
Invesco Dynamic Large Cap Value ETF (PWV - Free Report)
This ETF tracks the Dynamic Large Cap Value Intellidex Index and holds 52 stocks in its basket. It has amassed $629.8 million in its asset base and charges 55 bps in annual fees. The product trades in an average daily volume of 48,000 shares and has a Zacks ETF Rank #3.
Invesco S&P 500 Value with Momentum ETF (SPVM - Free Report)
This fund offers exposure to 102 securities in the S&P 500 Index, having the highest “value scores” and “momentum scores by tracking the S&P 500 High Momentum Value Index. It has accumulated $32.9 million in its asset base and trades in volume of 3,000 shares a day on average. The ETF charges 39 bps in annual fees and has a Zacks ETF Rank #3.
Vanguard Value ETF (VTV - Free Report)
This fund seeks to track the CRSP US Large Cap Value Index, holding a basket of 349 stocks. With AUM of $50.6 billion and an expense ratio of 0.04%, it trades in a solid volume of around 1.9 million shares per day on average. The product has a Zacks ETF Rank #2 (read: 5 ETFs Shining Bright Amid September Selling).
Vanguard Mega Cap Value ETF (MGV - Free Report)
This fund offers diversified exposure to the 151 largest value stocks in the U.S. market by tracking the CRSP US Mega Cap Value Index, charging 7 bps in fees from its investors. It has been able to manage assets worth $2.9 billion and trades in average daily volume of 178,000 shares. The product has a Zacks ETF Rank #2.
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 >>