The classic school of value investing, pioneered by Benjamin Graham and popularized by Warren Buffett, has long been a cornerstone of successful investment strategies.
This method revolves around identifying high-quality companies trading below their intrinsic value, offering investors an opportunity to become long-term owners at an attractive price, preferably with a substantial margin of safety.
“Value is buying something at a price that is attractive relative to what you are getting,” says Eduardo Repetto, chief investment officer at Avantis Investors. “Many confuse value as just being something that is low-priced, but a low price due to low profits or a weak balance sheet is not necessarily value — those are companies that have a low price because they deserve one and do not present an attractive investment opportunity.”
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However, the traditional route of value investing can present high barriers to entry for aspiring investors. It requires a significant commitment of time and effort to screen hundreds of stocks based on metrics like price-to-book, price-to-sales or price-to-earnings ratios.
For the shortlisted value candidates, investors must then conduct in-depth research into each company’s fundamentals, including a thorough analysis of financial statements and a deep dive into their competitive advantages. Essentially, this process can be akin to a full-time job, demanding a high level of expertise and dedication.
An increasingly popular alternative to this labor-intensive process is investing in exchange-traded funds, or ETFs, that focus on value stocks. These ETFs employ various strategies to construct a portfolio of value stocks, whether it’s following an external index, using a proprietary rules-based methodology or relying on the active discretion of the fund manager.
Each of these approaches aims to systematically isolate the “value premium,” as identified by economists Eugene Fama and Kenneth French, a factor recognized as a driver of long-term investment returns.
“The value premium is underpinned by straightforward logic: All else being equal, paying a lower price for a stock and its future cash flows can lead to higher expected returns,” says Marlena Lee, global head of investment solutions at Dimensional Fund Advisors. “Solutions designed around the drivers of higher expected returns — including value — can be a sensible way to orient portfolios to potentially outperform benchmarks.”
By investing in these value ETFs, individuals can benefit from the principles of value investing without the exhaustive work of stock picking and analysis. It allows investors to leverage the expertise of seasoned professionals, often at increasingly lower costs. This approach democratizes access to value investing, making it more feasible for a broader range of investors.
Here are seven of the best value ETFs to buy and hold in 2024:
| Fund | Expense ratio |
| Schwab U.S. Large-Cap Value ETF (ticker: SCHV) | 0.04% |
| Avantis U.S. Large Cap Value ETF (AVLV) | 0.15% |
| Roundhill Acquirers Deep Value ETF (DEEP) | 0.80% |
| Dimensional U.S. Small Cap Value ETF (DFSV) | 0.31% |
| Avantis U.S. Small Cap Value ETF (AVUV) | 0.25% |
| Dimensional Emerging Markets Value ETF (DFEV) | 0.43% |
| Avantis All Equity Markets Value ETF (AVGV) | 0.26% |
Schwab U.S. Large-Cap Value ETF (SCHV)
“If you are looking at a long-term, buy-and-hold retirement investment, consider a passive value ETF,” says Anessa Custovic, chief investment officer at Cardinal Retirement Planning Inc. “These will track an index and have lower fees than an actively managed ETF.” A great example is SCHV, which uses the Dow Jones U.S. Large-Cap Value Total Stock Market Index for its benchmark at a 0.04% expense ratio.
SCHV’s portfolio is highly diverse, with over 500 holdings at present. The ETF’s index is market-capitalization-weighted, which results in a tilt toward large-cap value stocks. Notable top holdings in SCHV currently include Berkshire Hathaway Inc. (BRK.B), JPMorgan Chase & Co. (JPM), Exxon Mobil Corp. (XOM), Johnson & Johnson (JNJ), and Procter & Gamble Co. (PG).
Avantis U.S. Large Cap Value ETF (AVLV)
“Large-cap companies represent a big portion of investors’ allocations, and while segments of the U.S. large-cap market today are trading at valuations well above historical averages, this isn’t the case for all companies in the large-cap universe,” says Mitchell Firestein, senior portfolio manager at Avantis Investors. For targeted exposure to U.S. large-cap value stocks, Avantis offers AVLV.
This ETF uses an actively managed, rules-based methodology to screen for large-cap U.S. stocks that are not only undervalued, but also profitable. “AVLV’s targeted exposure and characteristics, good diversification, 0.15% expense ratio and strong track record explain why many investors have found our approach to large value so attractive,” Firestein says.
Roundhill Acquirers Deep Value ETF (DEEP)
“ETFs are a great way of gaining exposure to the value factor because it’s difficult to identify it,” Custovic says. “You need a lot of fundamental data and intensive bottom-up analysis to identify a potential value stock, and most retail investors don’t have the expertise or time to do this.” A more advanced value ETF that goes beyond the usual value metrics is DEEP, which uses the “acquirers multiple.”
DEEP’s benchmark, the Acquirers Deep Value Index, screens for 100 micro- and small-cap stocks deemed to be undervalued relative to their income, cash flow or assets. The strategy is to isolate the most profitable undervalued companies that would be attractive as a takeover target. However, the more advanced methodology used by DEEP results in a higher 0.8% expense ratio.
Dimensional U.S. Small Cap Value ETF (DFSV)
“Dimensional has decades of experience helping investors with our rules-based approach, which incorporates profitability alongside size and value into security selection and uses daily implementation to maintain consistent focus on the asset class,” Lee says. The firm’s current ETF offering for domestic small-cap value stocks is DFSV, with a 0.31% expense ratio.
DFSV’s current portfolio consists of over 1,000 stocks with an aggregate 1.2 price-to-book ratio and $3.7 billion market capitalization, both of which indicate lower valuations and sizes. In 2023, the ETF strongly outperformed its benchmark, the Russell 2000 Value Index, returning 19.2% versus 14.7%. So far, the ETF has attracted over $2.5 billion in assets under management, or AUM.
[READ: 8 Cheap ETFs to Buy Now.]
Avantis U.S. Small Cap Value ETF (AVUV)
“Small-cap companies trading at attractive prices and with good profitability are trading at very appealing relative valuations looking back the last 20-plus years,” says Daniel Ong, senior portfolio manager at Avantis Investors. “These companies present a great opportunity versus other parts of the market that are trading at rich multiples.” The Avantis ETF to watch here is AVUV, at a 0.25% expense ratio.
As with AVLV, AVUV combines a focus on both valuation and profitability metrics. This screens out potentially “junky” small-cap stocks that may have lower valuations, but also have shaky fundamentals. Over the trailing three years, this methodology has helped AVUV achieve an annualized return of 18.4%, beating its benchmark, the Russell 2000 Value Index, which only returned 7.9%.
Dimensional Emerging Markets Value ETF (DFEV)
The value factor isn’t just limited to the U.S. market. By diversifying internationally to both developed and emerging markets in search of value, investors can uncover unappreciated opportunities and hedge against U.S. market stagnation. When it comes to emerging markets, investors can sidestep the risks of currency conversion by using an emerging market value ETF like DFEV.
This actively managed ETF targets undervalued equities from emerging-market countries like China, India, Taiwan, Korea, Brazil, Saudi Arabia, Mexico and more. In 2023, DFEV beat its benchmark, the MSCI Emerging Markets Value Index, returning 15.6% versus 14.2%. Despite being actively managed, DFEV keeps turnover reasonable at 18% and its expense ratio affordable at 0.43%.
Avantis All Equity Markets Value ETF (AVGV)
Investors looking for an all-in-one value ETF may like AVGV, which uses an “ETF of ETFs” structure to wrap five other Avantis ETFs spanning U.S. and international large- and small-cap value and broad emerging-market value. Currently, U.S. stocks account for 60% of AVGV’s portfolio, in line with current market-cap weights for the country. This mix is rebalanced periodically to ensure it remains consistent.
“Well-established research has shown that companies with a combination of strong profitability and attractive valuations can deliver premium performance,” says Matthew Dubin, portfolio manager at Avantis Investors. “AVGV’s ETF structure allows for efficient implementation of this research to help investors improve their asset allocations at a competitive expense ratio of 0.26%.”
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7 Best Value ETFs to Buy and Hold originally appeared on usnews.com
Update 01/31/24: This story was previously published at an earlier date and has been updated with new information.
