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Value ETF Investing to Shine as Sector Rotation Looks Likely?
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Wall Street has been kind to investors so far this year with the S&P 500 adding 18.2% this year and the tech-heavy Nasdaq adding 34%. Past month both indexes returned about 4% each. However, several market participants are now of the view that this rally has come to an end and challenging market may be upon us.
The yield curve started to steepen since past week. This wreaked havoc on tech stocks too as the sector is high-growth in nature and currently boasts a rick valuation. In fact, the value-oriented Dow Jones displayed strong performances for the last two weeks. We expect the sector rotation to be in cards.
In this scenario, value ETF investing is likely to rule.
Inside Value Investing
Value investing is a strategy that involves selecting stocks that appear to trade for less than their intrinsic or book value. This method, popularized by Warren Buffett, the “Oracle of Omaha,” aims to identify undervalued companies with strong fundamentals — such as dividends, earnings, and sales — which are expected to produce strong future cash flows.
The outperformance of value stocks during slowdown can be attributed to a few key factors:
Stable Cash Flows: Value companies, often mature, are more likely to generate steady cash flows, making them less susceptible to market fluctuations.
Dividends: These companies typically pay dividends, providing a steady income stream for investors, which is particularly attractive during slowdown.
Investor Sentiment: In times of economic difficulties, investors often change their focus from growth prospects to value.
Value Stocks Are Cheap Now
Growth stocks staged a comeback this year on hopes of a less-hawkish Fed. In comparison, value ETFs underperformed. But value ETFs are available at dirt-cheap valuation currently. While Vanguard Growth ETF (VUG - Free Report) has a P/E of 28.80X, Vanguard Value ETF (VTV - Free Report) has a P/E of 15.80X.
In fact, a pure-play tech ETF, iShares Expanded Tech-Software Sector ETF (IGV - Free Report) has a P/E of as high as 48.06X. In comparison, the pure-play sectoral value ETF Principal Healthcare Innovators ETF (BTEC - Free Report) has a P/E of 15.21X.
Below we have highlighted a few value ETFs that are cheap and may make a rebound if rate hike worries hit the global economy hard and growth stocks’ rally falters.
Image: Bigstock
Value ETF Investing to Shine as Sector Rotation Looks Likely?
Wall Street has been kind to investors so far this year with the S&P 500 adding 18.2% this year and the tech-heavy Nasdaq adding 34%. Past month both indexes returned about 4% each. However, several market participants are now of the view that this rally has come to an end and challenging market may be upon us.
The yield curve started to steepen since past week. This wreaked havoc on tech stocks too as the sector is high-growth in nature and currently boasts a rick valuation. In fact, the value-oriented Dow Jones displayed strong performances for the last two weeks. We expect the sector rotation to be in cards.
In this scenario, value ETF investing is likely to rule.
Inside Value Investing
Value investing is a strategy that involves selecting stocks that appear to trade for less than their intrinsic or book value. This method, popularized by Warren Buffett, the “Oracle of Omaha,” aims to identify undervalued companies with strong fundamentals — such as dividends, earnings, and sales — which are expected to produce strong future cash flows.
The outperformance of value stocks during slowdown can be attributed to a few key factors:
Stable Cash Flows: Value companies, often mature, are more likely to generate steady cash flows, making them less susceptible to market fluctuations.
Dividends: These companies typically pay dividends, providing a steady income stream for investors, which is particularly attractive during slowdown.
Investor Sentiment: In times of economic difficulties, investors often change their focus from growth prospects to value.
Value Stocks Are Cheap Now
Growth stocks staged a comeback this year on hopes of a less-hawkish Fed. In comparison, value ETFs underperformed. But value ETFs are available at dirt-cheap valuation currently. While Vanguard Growth ETF (VUG - Free Report) has a P/E of 28.80X, Vanguard Value ETF (VTV - Free Report) has a P/E of 15.80X.
In fact, a pure-play tech ETF, iShares Expanded Tech-Software Sector ETF (IGV - Free Report) has a P/E of as high as 48.06X. In comparison, the pure-play sectoral value ETF Principal Healthcare Innovators ETF (BTEC - Free Report) has a P/E of 15.21X.
Below we have highlighted a few value ETFs that are cheap and may make a rebound if rate hike worries hit the global economy hard and growth stocks’ rally falters.
ETFs in Focus
iShares Focused Value Factor ETF (FOVL - Free Report) – 6.43X
Invesco S&P MidCap 400 Pure Value ETF (RFV - Free Report) – 8.10X
Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – 7.21X
Invesco S&P 500 Pure Value ETF (RPV - Free Report) – 8.55X
Invesco S&P SmallCap 600 Pure Value ETF (RZV - Free Report) – 8.87X