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Time to Buy Value ETFs as Volatility Grips Wall Street

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After a solid start to 2022, Wall Street has been witnessing huge volatility. This is especially true as Fed’s tightening policy has lifted up Treasury yields, leading to a sell-off in high-growth sectors like technology. The 10-year yield topped 1.8% to reach its highest level since January 2020 (read: Treasury Yields Jump to Start New Year: ETFs to Play).

Amid this volatility, value investing seems the perfect choice. In fact, iShares Russell 1000 Value ETF (IWD - Free Report) , which targets the value segment, has outperformed, gaining 0.6% so far this year, compared with a decline of 4.9% for its growth counterpart iShares Russell 1000 Growth ETF (IWF - Free Report) .

ETFs like Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) , Invesco S&P 500 Value with Momentum ETF (SPVM - Free Report) , iShares Edge MSCI USA Value Factor ETF (VLUE - Free Report) , and Invesco Dynamic Large Cap Value ETF (PWV - Free Report) are leading the way higher to start the year and are likely to continue doing so at least in the near term. These funds have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).

Current Market Trends

Wall Street wrapped up the first week of the New Year on a sour note. The S&P 500 posted the worst start to a year since 2016 while the Nasdaq logged the worst week since February, knocked down by Fed’s hawkish view and a rapid surge in the Omicron COVID-19 cases.

The latest Fed minutes signaled three rate increases this year and three in the following year as inflation concerns deepened. The probabilities of a March interest rate hike of 0.25% surged to 72%, according to fed futures trading contracts. Additionally, the central bank is expected to increase the pace of scaling back monthly bond purchases this month, a move that has pushed the yields higher.

Omicron cases are surging in the United States with more than a million new cases in a single day and hospitalizations hitting new highs (read: 5 Top-Ranked ETFs to Add to Your Portfolio for 2022).

Higher yields indicate investors’ optimism in the economy backed by increased consumer confidence, rising wages and higher spending. This combination of factors will result in increased industrial activity and a pickup in consumer demand, thereby lifting value stocks. Additionally, the wider spread of vaccinations, new vaccines as well as solid corporate earnings bode well for the 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. These seek to capitalize on the inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with their growth and blend counterparts. Additionally, value stocks are less susceptible to trending markets and their dividend payouts offer safety in times of market turbulence.

Notably, these stocks outperform the growth ones across all asset classes when considered on a long-term investment horizon.

Let’s discuss the above-mentioned ETFs in detail below:

Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – Up 4.5%

Invesco S&P 500 Enhanced Value ETF follows the S&P 500 Enhanced Value Index, which measures the performance of stocks in the S&P 500 Index that have the highest "value score." The product holds 102 stocks in its basket with key holdings in financials, healthcare and consumer discretionary (read: 5 Top-Ranked ETFs to Buy At Bargain Prices).

Invesco S&P 500 Enhanced Value ETF has accumulated $150.2 million in AUM while trades in a light average daily volume of 20,000 shares. The product charges 13 bps in annual fees and has a Zacks ETF Rank #1.

Invesco S&P 500 Value with Momentum ETF (SPVM - Free Report) – Up 4.1%

Invesco S&P 500 Value with Momentum ETF 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 key holdings in financials, consumer discretionary and energy with a double-digit allocation each.  

Invesco S&P 500 Value with Momentum ETF has accumulated $39.4 million in its asset base and trades in volume of 4,000 shares a day on average. SPVM charges 39 bps in annual fees and has a Zacks ETF Rank #2.

iShares Edge MSCI USA Value Factor ETF (VLUE - Free Report) – Up 3.2%

iShares Edge MSCI USA Value Factor ETF offers exposure to large- and mid-cap U.S. stocks with lower valuations based on fundamentals and tracks the MSCI USA Enhanced Value Index. It holds 149 stocks in its basket with each accounting for less than 7.5% of assets.  Information technology takes the largest share at 30.7% while healthcare, consumer discretionary and communication round off the next three.

iShares Edge MSCI USA Value Factor ETF has amassed $16.9 billion in its asset base and charges 15 bps in annual fees. It trades in an average daily volume of 1.4 million shares and has a Zacks Rank #2.

Invesco Dynamic Large Cap Value ETF (PWV - Free Report) – Up 3.1%

Invesco Dynamic Large Cap Value ETF tracks the Dynamic Large Cap Value Intellidex Index and holds 52 stocks in its basket. It has key holdings in financials, healthcare, consumer staples and information technology.

Invesco Dynamic Large Cap Value ETF has amassed $840.6 million in its asset base and charges 58 bps in annual fees. The product trades in an average daily volume of 25,000 shares and has a Zacks ETF Rank #2.

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