If you fear risks in the fourth quarter, focus on value investments.
At the start of September, investors enjoy an S&P 500 index near all-time highs even as some gloomy economic headlines cast their shadows over Wall Street. Chief among them are recent weakness in jobs data, which comes against the backdrop of expiring unemployment benefits, as well as higher prices thanks to inflationary pressures in recent months. That could add up to trouble with fewer folks working in the months ahead as we enter the all-important fourth quarter of holiday spending. If you’re worried that this dark shift in economic indicators could create trouble for stocks, then consider going toward value investments rather than growth-oriented opportunities. Here are seven value exchange-traded funds that allow you to position yourself in stocks with solid balance sheets and firm operations.
Vanguard Value ETF (ticker: VTV)
The largest value-oriented fund with nearly $130 billion in assets under management, this Vanguard ETF is benchmarked to the CRSP U.S. Large Cap Value Index of about 350 big-name stocks that exhibit value characteristics when compared with their peers. For those unfamiliar, CRSP stands for the Center for Research in Securities Prices — a not-for-profit affiliate of the University of Chicago Booth School of Business. This academic background means that the indexes are backed by strong research but also that they are very affordable to access; VTV costs just 0.04% in annual expenses, or $4 for every $10,000 invested.
iShares Russell 1000 Value ETF (IWD)
Slightly more expansive and with a bit more name recognition behind its index is this iShares value ETF. The fund sorts the Russell 1000 index of large-cap U.S. stocks, then picks the top 840 or so out of that group. That means megabanks such as JPMorgan Chase & Co. (JPM) and health care giant Johnson & Johnson (JNJ) are atop this list. It’s not a terribly glamorous or sophisticated approach, but it’s quite effective as a value strategy. It’s also quite popular, with more than $55 billion in assets under management at present.
Vanguard Small-Cap Value ETF (VBR)
Some investors aren’t convinced that there’s a ton of true value in large stocks, as the stock market is full of sharp-witted traders who know how to analyze a bargain, and that means large stocks are efficiently priced without much extra “value” to be had at any moment in time. However, small stocks can be a different story as they are not as widely covered and sometimes require more effort to research — this allows for the inefficiencies in pricing that value investors like. There are about 1,000 stocks that currently make up VBR, but they are lesser-known companies including industrial manufacturer Idex Corp. (IEX) and entertainment real estate firm Vici Properties Inc. (VICI) to name a few.
iShares S&P 500 Value ETF (IVE)
Perhaps the simplest option of all, IVE screens through the S&P 500 index to skew toward the 430 or so value-oriented plays in this major U.S. benchmark. Familiar megabrands such as Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) and The Walt Disney Co. (DIS) are atop the list of current holdings, but you’ll find growth-oriented megacap tech stocks such as Apple Inc. (AAPL) decidedly absent from this list. In fact, unlike the core S&P index that is heavily invested in technology, you’ll find financials as a whole make up the top sector at 22% of total assets in IVE.
iShares MSCI USA Value Factor ETF (VLUE)
This $16 billion iShares fund offers broad exposure to both large and midsized U.S. stocks that exhibit strong value characteristics. Despite this fairly broad mandate, VLUE offers a reasonably focused list of just 150 or so total companies. The list is still weighted by market value, however, so top positions at present that include telecom AT&T Inc. (T) and chipmaker Intel Corp. (INTC) collectively make up about 13% of the entire portfolio. Still, this fund is more strategic with its proprietary “value factor” screening methodology even if it’s not terribly diversified, so some investors may not mind a shorter total list of components — as long as these big positions pay off, that is.
iShares Russell 2000 Value ETF (IWN)
Yet another iShares offering, IWN is benchmarked to the Russell 2000 index and then filters stocks based on value characteristics. For those unfamiliar, the Russell 3000 is the 3,000 largest U.S. stocks — effectively anything larger than a microcap or penny stock — with the Russell 1000 being the largest third and the Russell 2000 being the lower two-thirds of that grouping. The IWN ETF then takes that list of 2,000 smaller stocks and limits it to the 1,400 or so that exhibit the best value characteristics. That means you’re cutting out the big-name picks typical in most ETFs and instead relying on companies such as theater operator AMC Entertainment Holdings Inc. (AMC) and hospital operator Tenet Healthcare Corp. (THC).
iShares MSCI EAFE Value ETF (EFV)
The smallest value ETF on this list, EFV is still substantive at roughly $15 billion in total assets under management. The fund is focused on an MSCI index of EAFE stocks — that is, Europe, Australasia and the Far East — to give investors both a value flavor but also an international approach. These stocks are multinationals in developed markets for the most part, with familiar foreign stocks such as Japan’s Toyota Motor Corp. (TM) and Swiss health care giant Novartis AG (NVS) at the top of the list. This added geographical diversification could be particularly appealing for investors looking to go “risk off” in value stocks toward the end of 2021.
7 Value ETFs for a Risk-Off Market
— Vanguard Value ETF (VTV)
— iShares Russell 1000 Value ETF (IWD)
— Vanguard Small-Cap Value ETF (VBR)
— iShares S&P 500 Value ETF (IVE)
— iShares MSCI USA Value Factor ETF (VLUE)
— iShares Russell 2000 Value ETF (IWN)
— iShares MSCI EAFE Value ETF (EFV)
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