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Bet on Value ETFs to Tap an Uneven Market

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Wall Street has shown a superb rally since hitting lows since late March on a surging technology sector, massive stimulus flowing into the economy, hopes of potential of COVID-19 vaccines, and pickup in economic activities due to easing of lockdown measures.

However, the rally halted last week as fears of a new wave of coronavirus infections have emerged given that some states, which have lifted lockdown orders, have seen rising cases. Florida is seeing an average of more than 1,600 new cases per day, and Arizona and North Carolina are experiencing an average of more than 1,200 new cases per day (read: Top and Flop ETFs of Last Week).

Additionally, the Fed’s bleak outlook on the economy also unnerved investors. The central bank said that the impacts of the COVID-19 pandemic would last for the next couple of months and cautioned that some of the millions of jobs that have been lost during the viral outbreak may never return. It warned that the U.S. economy will contract by 6.5% in 2020 before rebounding 5% next year, and the unemployment rate will fall to 9.3% by the end of this year. Though the unemployment rate is down from 13.3% in May, it will be substantially above the 3.5% rate recorded in February, which was a near 50-year low. Notably, the three major indices suffered their biggest weekly losses since Mar 20 last week.

The fears have been outweighed by the new Fed easing policies. The central bank would begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds. Further, the Trump administration is preparing a nearly $1 trillion infrastructure proposal to spur the world’s largest economy back to life. The White House spending plan would be mostly for traditional infrastructure such as roads and bridges but also for 5G wireless infrastructure and rural broadband.

The move has led to a rebound in the stock market in the latest trading session and bolstered investors’ confidence. In such a scenario, value investing seems appealing to investors.
 
Why Value?

Value stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value. These seek to capitalize on inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with growth and blend counterparts. Additionally, value stocks are less susceptible to trending markets and their dividend payouts offer safety in times of market turbulence (read: Worried About Volatility? Invest in These ETFs).

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

Given this, we have presented a bunch of ETFs with a solid Zacks ETF Rank #2 (Buy) that will likely outperform in the coming weeks, especially in a shaky market.

Vanguard Value ETF (VTV - Free Report)

This fund seeks to track the CRSP US Large Cap Value Index, charging investors 4 bps in fees and expenses. Holding 332 stocks in its basket, it has AUM of $47.8 billion.

iShares S&P 500 Value ETF (IVE - Free Report)

With AUM of $15.6 billion, this product follows the S&P 500 Value Index, holding 392 stocks in its basket. It has an expense ratio of 0.18%.

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 that are classified as "value" based on a number of factors. It has AUM of $6.4 billion and charges 4 bps in annual fees.

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

With AUM of $5.6 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 150 securities and charges investors 15 bps in annual fees (read: 5 ETFs For Protection From Market Crash).

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

This ETF tracks the S&P 500 Value Index, charging investors 4 bps in annual fees. It holds 392 stocks in its basket and has amassed $4.8 billion in its basket.  

Vanguard Mega Cap Value ETF (MGV - Free Report)

This fund offers diversified exposure to the largest value stocks in the U.S. market by tracking the CRSP US Mega Cap Value Index, charging 7 bps in fees from investors. It has been able to manage assets worth $2.7 billion.

Vanguard Russell 1000 Value ETF (VONV - Free Report)

With AUM of $2.4 billion, this ETF follows the Russell 1000 Value Index and charges investors 8 bps in annual fees.

Vanguard S&P 500 Value ETF (VOOV - Free Report)

This fund seeks to track the S&P 500 Value Index, charging investors 10 bps in fees and expenses. Holding 395 stocks in its basket, it has AUM of $1.2 billion.

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