Back to top

Image: Bigstock

5 Value ETFs to Buy Now for Outperformance

Read MoreHide Full Article

Value investing has been in vogue this year, given that Wall Street is struggling to find a solid footing. This is especially true as value stocks provide investors some shelter to investors from deep losses.

As such, value ETFs pulled in $37.6 billion in the first four months of the year, following $60.3 billion net inflows during 2021, according to data from State Street. On the other hand, growth ETFs saw net outflows of $2 billion in the first four months of 2022, partially reversing the positive inflows of $38.2 billion over the whole of last year (read: 5 ETFs to Protect Your Portfolio Amid Market Sell-Off).

While there are many options available in this space, investors could tap the trends with ETFs having a Zacks Rank #1 (Strong Buy) or #2 (Buy). iShares Core S&P U.S. Value ETF (IUSV - Free Report) , Vanguard Value ETF (VTV - Free Report) ), SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report) , Vanguard Mega Cap Value ETF (MGV - Free Report) and iShares Edge MSCI USA Value Factor ETF (VLUE - Free Report) look like compelling choices.

Value stocks have strong fundamentals — earnings, dividends, book value and cash flow —and trade below their intrinsic value. 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. Value stocks are less susceptible to trending markets and their dividend payouts offer safety in times of market turbulence.

Below we discuss some strong reasons for investing in value ETFs.

Market uncertainty led by skyrocketing inflation, Fed’s aggressive rate hikes and Russia’s invasion of Ukraine have raised the appeal for value investing (read: Best ETFs for High Inflation and Rising Rates).

Growth stocks have become too expensive after a 10-year super cycle, compelling investors to dump them as the era of low interest rates ended. The Federal Reserve has started raising interest rates more aggressively to fight inflation. Fed Chair Jerome Powell has raised interest rates by 50 bps in the latest FOMC meeting and signaled that it would keep hiking at the same pace over the next couple of meetings. This marks the biggest interest-rate hike since 2000.

Higher yields indicate 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 ongoing Russia-Ukraine war has led to supply disruption fears in an already-tight commodity market, thereby resulting in amplified inflation worries.

Moreover, the data shows that the value index outperformed the growth index during rising inflation and rates. Value stocks are seeing a fortune reversal with central banks tightening policies to contain inflation after 10-years of underperformance.

iShares Core S&P U.S. Value ETF (IUSV - Free Report)

iShares Core S&P U.S. Value ETF offers exposure to large- and mid-cap U.S. equities that exhibit value characteristics by tracking the S&P 900 Value Index. It holds 742 stocks in its basket, with each accounting for no more than a 3.1% share. iShares Core S&P U.S. Value ETF is widely spread across sectors with health care, financials, industrials, information technology and consumer staples occupying double-digit exposure each (read: 5 Safe Investing Zones &Their ETFs to Escape Market Rout).

iShares Core S&P U.S. Value ETF has AUM of $11.7 billion and trades in an average daily volume of 643,000 shares. It charges 4 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Value ETF (VTV - Free Report)

Vanguard Value ETF targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. The product holds 349 stocks in its basket, with each accounting for no more than 3.3% of the assets.

Vanguard Value ETF has AUM of $100.8 billion and charges 4 bps in annual fees. The product trades in volume of 4 million shares per day on average and has a Zacks ETF Rank #1 with a Medium risk outlook.

SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report)

SPDR Portfolio S&P 500 Value ETF tracks the S&P 500 Value Index, charging investors 4 bps in annual fees. It holds 447 stocks in its basket, with each accounting for no more than 3.2% of assets. Health care, financials, industrials, information technology and consumer staples are the top five sectors with double-digit exposure each (read: An ETF Retirement Portfolio for 2022).

SPDR Portfolio S&P 500 Value ETF has amassed $13.2 billion in its asset base and sees an average daily volume of 3.5 million shares. It charges 4 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Mega Cap Value ETF (MGV - Free Report)

Vanguard Mega Cap Value ETF follows the CRSP US Mega Cap Value Index, which measures the performance of the largest value stocks in the U.S. market. It holds 148 stocks in its basket, with each accounting for less than 4% of assets. Healthcare, financials, industrials and consumer staples are the top four sectors with double-digit exposure each.

Vanguard Mid-Cap Value ETF has amassed $6 billion and trades in an average daily volume of 381,000 shares. It charges 7 bps in fees per year and has a Zacks ETF Rank #1.

iShares Edge MSCI USA Value Factor ETF (VLUE - Free Report)

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 6.6% of assets. Information technology takes the largest share at 28.8% while healthcare, communication and financials round off the next three.

iShares Edge MSCI USA Value Factor ETF has amassed $11.5 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.