7 Best Value ETFs to Buy and Hold

These are some of the best value ETFs to buy now.

One of the most popular investment strategies is value investing. Pioneered by Benjamin Graham and popularized by his protege Warren Buffett, value investing attempts to find companies that trade at attractive valuations relative to where their fundamentals suggest they should be valued. Often, this means screening for companies with lower price-earnings (P/E), price-sales (P/S), price-book (P/B) and price-free cash flow (P/FCF) ratios. The goal here is to buy shares of an undervalued stock at an attractive price before “Mr. Market” wakes up and prices them higher. When implemented correctly, value investors can reap strong returns even when the rest of the market takes a bath. Notably, Nobel Prize winners Eugene Fama and Kenneth French found evidence for the “value” risk factor, which explains the historically higher rates of return for undervalued stocks relative to growth stocks. Today, aspiring value investors can buy and hold these seven exchange-traded funds, or ETFs.

Vanguard Value ETF (ticker: VTV)

One of the most popular options for passive value investors is VTV. This ETF tracks the CRSP U.S. Large Cap Value Index, which holds a portfolio of 344 large-cap U.S. value stocks such as Berkshire Hathaway Inc. (BRK.B), UnitedHealth Group Inc. (UNH), Johnson & Johnson (JNJ) and Exxon Mobil Corp. (XOM). Compared to the S&P 500, VTV is less concentrated in technology sector stocks and more weighted toward health care, financial, industrial and consumer staple stocks. Valuations are also lower than the S&P 500, as the ETF has an average P/E ratio of 15.2 and P/B ratio of 2.5. Due to its passive indexing methodology, VTV boasts low fund turnover and a low expense ratio, costing just 0.04% annually in fees, or $4 per $10,000 invested.

Vanguard Russell 1000 Value ETF (VONV)

VONV also tracks U.S. value stocks but does so via a different index: the Russell 1000 Value Index. Compared to VTV, VONV holds 857 stocks with a lower average P/E ratio of 14.9 and a P/B ratio of 2.2. This makes the ETF potentially more diversified and tilted toward the value risk factor. Still, its top holdings look very similar to VTV, with Berkshire Hathaway, Johnson & Johnson and Exxon Mobil in first, second and third place again. Over a 10-year trailing period, VONV has returned an annualized 10.4%, compared to 11.73% for VTV. Still, given their similar holdings yet different indexes, a good use for VONV could be as a tax-loss harvesting partner for VTV. The ETF also costs an expense ratio of 0.04%.

Vanguard S&P 500 Value ETF (VOOV)

Investors seeking the name-brand recognition of the S&P 500 can buy VOOV, which only holds value stocks represented in the S&P 500. The fund holds a total of 447 stocks. A good way to think about VOOV is that it’s essentially the S&P 500 minus the growth stocks. As such, the ETF is tilted strongly toward large-cap value stocks. However, it looks slightly overvalued compared to VTV or VONV, with an average P/E ratio of 17.1 and P/B ratio of 2.6. Its average annualized 10-year performance sits in the middle of VTV and VONV at 10.8%. A good use for VOOV could be as another tax-loss harvesting option for the first two ETFs. Alternating between the three ETFs during a bear market could be a great way for investors to offset future capital gains taxes. VOOV costs a slightly higher expense ratio of 0.1%.

Invesco S&P 500 Pure Value ETF (RPV)

Investors willing to stray away from passive indexing in the pursuit of “pure value” stocks can opt for RPV. This ETF uses a semi-active, rules-based methodology to screen potential holdings. Stocks in RPV can be classified as either deep value, blend or deep growth, depending on their “style scores” for value versus growth. Value is measured by the P/E, P/B and P/S ratios. Stocks that score as “deep value” are held, with the most undervalued ones receiving a higher weighting in the ETF. Compared to the previous Vanguard ETFs, RPV has a lower P/E of 9.7 and a lower P/B of 1.49. Over the trailing 10 years, it has also outperformed VTV, VOOV and VONV with an average annualized return of 12.2%. However, the fund has a higher turnover due to its active management approach and thus has a pricier expense ratio of 0.35%.

SPDR S&P 600 Small Cap Value ETF (SLYV)

Not all value stocks are large caps. Some value stocks can be small caps, which are companies with market capitalizations of $300 million to $2 billion. This is important because when Fama and French, the Nobel Prize winners, discovered the “value” risk factor, they also found the “size” risk factor, defined as the historically greater returns of small-cap stocks compared to large-cap stocks. Combining the “value” and “size” risk factors leads to small-cap value stocks, which have historically been the strongest-performing component of the U.S. stock market. A great way to buy small-cap value stocks using a passive indexing approach is via SLYV, which tracks the S&P SmallCap 600 Index. The ETF has low P/E and P/B ratios of 10.4 and 1.3, respectively. SLYV costs an expense ratio of 0.15%.

Dimensional US Small Cap Value ETF (DFSV)

Having the right screeners and methodologies in place can make or break a small-cap value strategy. When it comes to active small-cap value funds, few providers have performed as consistently or strongly as Dimensional Fund Advisors. DFSV is a continuation of Dimensional’s long-standing U.S. small-cap value mutual fund DFSVX, which has outperformed the S&P 500 and the Russell 2000 since its inception. From 1994 to the present, DFSV has posted an average annualized 10.9% return, compared to the 9.7% return of the S&P 500. Compared to passive small-cap value funds, DFSV not only screens for size and value, but also checks for profitability to capture more risk factors. The ETF costs an expense ratio of 0.31%.

Avantis U.S. Small Cap Value ETF (AVUV)

Avantis Investors was created after the departure of numerous executives from Dimensional Fund Advisors. This new firm quickly established a name for itself with its suite of actively managed factor ETFs. One of its most popular products so far has been AVUV. Like DFSV, AVUV uses a proprietary algorithm to select small-cap stocks with low valuations and strong profitability. Avantis also checks for momentum when making trades in order to further enhance gains. In its short lifespan, AVUV has beaten its benchmark, the Russell 2000 Value Index, with an annualized return of 13.9% versus 6.2% for the Russell 2000 from 2020 to present. A good use for AVUV is as a tax-loss harvesting partner for DFSV, given their similar performance and management team background. AVUV costs an expense ratio of 0.25%.

7 best value ETFs to buy and hold:

— Vanguard Value ETF (VTV)

— Vanguard Russell 1000 Value ETF (VONV)

— Vanguard S&P 500 Value ETF (VOOV)

— Invesco S&P 500 Pure Value ETF (RPV)

— SPDR S&P 600 Small Cap Value ETF (SLYV)

— Dimensional US Small Cap Value ETF (DFSV)

— Avantis U.S. Small Cap Value ETF (AVUV)

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