Buy value stocks and enjoy the profits.
Value investing is one of Wall Street’s most well-traveled strategies, and that’s because it’s one of the most lucrative. While the idea is simple — find great, undervalued companies, then wait for Wall Street to bid them up — it’s easy to stumble upon individual value traps. One way to reduce these land mines is exchange-traded funds, which expose you to hundreds of stocks selected based on certain value metrics. That’s immediate diversification! You can start your search with U.S. News & World Report’s 10 best large-value ETFs:
#10: WisdomTree LargeCap Dividend ETF (ticker: DLN)
Despite being last on this list, DLN has been the best “value” of the list, producing a total return of just more than 73 percent over the past five years. This ETF doesn’t have an explicit mission to target large-cap value stocks, but it’s an understandable byproduct of going after slower-growth, dividend-paying stocks such as AT&T (T) and battered Exxon Mobil Corp. (XOM). The fund yields nearly 3 percent, and that’s what has helped drive such a large total return.
Expenses: 0.28 percent, or $28 annually per $10,000 invested.
#9: iShares Russell Top 200 Value ETF (IWX)
IWX’s 130 holdings are plucked from the Russell Top 200 index — the 200 largest companies in the Russell 3000 index — with each considered to be undervalued compared to the rest of the market via certain metrics. While you would think a fund stuffed with value stocks would be heavy with beaten energy stocks, you’d be partially right — energy is the second-largest sector weight at nearly 15 percent (financials are 26 percent). The biggest individual weights go to XOM, General Electric Co. (GE) and Johnson & Johnson (JNJ).
Expenses: 0.2 percent
#8: Schwab US Large-Cap Value ETF (SCHV)
The SCHV is the cheapest fund of the group at just 6 basis points annually. It also features a pretty wide set of nearly 350 holdings, selected by metrics such as price-earnings and price-book ratios. SCHV also has a somewhat different makeup than the IWX. Financials are the leading sector weighting at around 20 percent, but that’s followed up by consumer staples (15 percent) and information technology (13 percent); energy is much farther down the totem pole at roughly 8 percent.
Expenses: 0.06 percent
#7: Vanguard Value ETF (VTV)
Naturally, a Vanguard fund would be another cheap option among large value funds. The VTV can be had at just 6 basis points annually, and it too follows an index that focuses on stocks with favorable readings in metrics such as P/B, P/E, price-dividend and price-sales. Financials are again the biggest weight at about 21 percent of the fund, followed by health care (14 percent), consumer goods (12 percent) and industrials (12 percent). VTV shares its top three holdings — Microsoft Corp. (MSFT), XOM and JNJ — with SCHV.
Expenses: 0.09 percent
#6: PowerShares FTSE RAFI US 1000 ETF (PRF)
The PRF is a straightforward large-capitalization fund that invests in roughly 1,000 equities, focusing on “four fundamentals of firm size: book value, cash flow, sales and dividends.” This results in a massive fund whose holdings sport an average market cap of more than $100 billion. PRF is similar to other funds in the group in that financials (21 percent) are the heaviest sector, but it’s very balanced, with six sectors ranging between 9 and 13 percent in weight. Top holdings include XOM, Chevron Corp. (CVX) and AT&T.
Expenses: 0.39 percent (includes fee waiver)
#5: iShares S&P 500 Value ETF (IVE)
This iShares fund invests in the most value-centric stocks in the Standard & Poor’s 500 index, which actually is a pretty hefty chunk of the index — IVE currently holds 366 stocks. This ETF is pretty thick in financials at 24 percent, with fairly equally smatterings of energy, health care and industrials (11 to 12 percent each). Top holdings include XOM, Berkshire Hathaway (BRK.A, BRK.B) and T.
Expenses: 0.18 percent
#4: Vanguard S&P 500 Value ETF (VOOV)
This Vanguard fund is awfully darn close in construction to the IVE, which makes sense considering it’s a value fund made up of S&P 500 stocks. Sector holdings are almost identical to IVE, and the funds share the same top 10 holdings; the only difference up top is that VOOV has Procter & Gamble (PG) and Wells Fargo & Co. (WFC) at Nos. 4 and 5 in the fund, and IVE has them flipped. Of note: Vanguard’s offering is cheaper by 3 basis points.
Expenses: 0.15 percent
#3: Vanguard Mega Cap Value ETF (MGV)
The MGV is a collection of more than 150 mega-cap stocks with a median market cap of $118 billion, screened by the same value metrics that the VTV seeks. MGV is, surprise surprise, thick in financials at about 21 percent of the fund, followed by 15.5 percent in health care. Top holdings include Microsoft, XOM and JNJ, which should also sound familiar. What does stand out about MGV, though, is that it’s the best total returner among this group over the past three years.
Expenses: 0.09 percent
#2: Vanguard Russell 1000 Value ETF (VONV)
Vanguard’s VONV is another way to break apart the large value world, this time by investing in value stocks across the Russell 1000. This results in about 690 stocks with a median market cap of $51.4 billion — so, a bit smaller on average than numerous funds on this list. It has a very large weight in financials at nearly 29 percent, and boasts XOM, GE and JNJ as its top three holdings.
Expenses: 0.12 percent
#1: iShares Core US Value (IUSV)
The IUSV has the odd distinction of being the most diverse fund on the list, as well as the most top-heavy fund on the list. IUSV holds more than 2,000 stocks within the Russell 3000 that register as “value stocks,” and by the merit of including so many stocks, it bleeds into mid-caps pretty heavily; all told, the fund’s holdings average less than $40 billion in market cap. However, IUSV also has the heaviest overweight to financials at 29 percent.
Expenses: 0.07 percent
More from U.S. News
The 10 Best Financial ETFs You Can Buy
7 Great Ways to Invest in Cuba
7 Stocks That Will Ruin Your Portfolio
The 10 Best ETFs for Value Investors originally appeared on usnews.com
