Best value ETFs

Posted by admin on Apr 18th, 2022

Value investing has proven to be one of the most successful investing strategies over the long-term. Legendary investors, including Warren Buffett, have used the value approach to generate outstanding returns over time.

In recent years, however, value stocks have drastically trailed growth stocks as low interest rates propelled the valuations of fast-growing companies. From 2011 to 2020, large value funds underperformed large growth funds by more than 5 percentage points each year, according to Morningstar. In 2020, the gap was an astounding 32.2 percent.

But as the economy recovers from the global pandemic and the Federal Reserve begins to raise interest rates for the first time in years, some investors think value stocks are ready to break out from their slump. In a recent Bankrate survey, more than 56 percent of the analysts expected value stocks to outperform growth stocks over the coming year.

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Value has already started to outperform, with the Russell 1000 Growth Index falling by more than 12 percent in 2022 through April 13, compared to only a 0.6 percent decline for the Russell 1000 Value Index.

What is value investing?

Value investing can mean different things to different people. In broad terms, it is the act of getting more than you’re paying for in an investment. Growth, of course, is an important component of a company’s value to shareholders, and growing companies can certainly represent good value, depending on the price they can be purchased for.

The professional investing world has divided the fund universe into different categories, such as value and growth funds. This segmentation requires a more quantitative definition of value and growth. Value funds tend to hold companies with lower price-to-book and price-to-earnings ratios than those of a broad index. They also tend to come with higher dividend yields and lower expected earnings growth in the future.

Here are some of the top value ETFs to consider for your portfolio. (Data as of April 13, 2022.)

Top value ETFs

Vanguard Value ETF (VTV)

The Vanguard Value ETF seeks to track the performance of the CRSP U.S. Large Cap Value Index, which measures the returns of large-cap value stocks. The fund holds about 350 different stocks.

5-year returns (annualized): 12.4 percent

Expense ratio: 0.04 percent

Assets under management: $103.4 billion

Top holdings: Berkshire Hathaway (BRK.B), UnitedHealth Group (UNH), Johnson & Johnson (JNJ) and JPMorgan Chase (JPM)

Dividend yield: 2.2 percent