Value investing has proven to be one of the most successful investing strategies over the long term. Many of the world’s top investors, including the legendary 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 Federal Reserve has kept interest rates high to combat high inflation, some investors think value stocks are set up for a run of outperformance.
Value outperformed in 2022, with the Russell 1000 Value Index falling about 7.5 percent compared to a more than 29 percent decline for the Russell 1000 Growth Index. But that trend reversed itself in 2023, with the value index increasing about 11.5 percent, compared to a roughly 42.7 percent increase for the growth index.
Here are some of the top value ETFs to consider for your portfolio. (Data as of July 30, 2024.)
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 340 different stocks.
5-year returns (annualized): 11.0 percent
Expense ratio: 0.04 percent
Assets under management: $121.3 billion
Top holdings: Berkshire Hathaway (BRK.B), Broadcom (AVGO), JPMorgan Chase (JPM) and Exxon Mobil (XOM)
Dividend yield: 2.5 percent
IWD seeks to track the performance of the Russell 1000 Value Index, which includes large- and mid-cap U.S. stocks that have value characteristics. The fund gives investors exposure to companies that are thought to be undervalued relative to comparable businesses.
5-year returns (annualized): 9.5 percent
Expense ratio: 0.19 percent
Assets under management: $58.3 billion
Top holdings: Berkshire Hathaway (BRK.B), Exxon Mobil (XOM), JPMorgan Chase (JPM) and UnitedHealth Group (UNH)
Dividend yield: 2.0 percent
The Vanguard Small-Cap Value ETF seeks to track the performance of the CRSP U.S. Small Cap Value Index, which measures the returns of small-cap value stocks. The fund holds more than 800 stocks and has 5 percent of its assets in the top 10 holdings.
5-year returns (annualized): 10.6 percent
Expense ratio: 0.07 percent
Assets under management: $29.9 billion
Top holdings: Carlisle Companies (CSL), Booz Allen Hamilton (BAH), Builders FirstSource (BLDR) and First Citizens BancShares Class A (FCNCA)
Dividend yield: 2.2 percent
VOE seeks to track the performance of the CRSP U.S. Mid Cap Value Index, which measures the returns of mid-cap value stocks. The fund’s holdings generally fall in between small- and large-cap stocks. The fund holds about 200 stocks and has 12 percent of the fund invested in the top 10 holdings.
5-year returns (annualized): 9.5 percent
Expense ratio: 0.07 percent
Assets under management: $16.9 billion
Top holdings: PACCAR (PCAR), Arthur J. Gallagher & Co (AJG), Carrier Global (CARR) and Digital Realty Trust (DLR)
Dividend yield: 2.3 percent
The Fidelity High Dividend ETF invests in stock of large- and mid-cap companies that are expected to pay and grow dividends into the future. The fund holds about 100 stocks and has 30 percent of its assets in the top 10 holdings.
5-year returns (annualized): 13.5 percent
Expense ratio: 0.15 percent
Assets under management: $3.1 billion
Top holdings: Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL) and Exxon Mobil (XOM)
Dividend yield: 3.0 percent
ONEY seeks to provide investment results that generally track the performance of the Russell 1000 Yield Focused Factor Index. The fund hopes to collect above-average dividend payments to increase total returns.
5-year returns (annualized): 12.3 percent
Expense ratio: 0.20 percent
Assets under management: $833.3 million
Top holdings: Bristol-Myers Squibb (BMY), Altria Group (MO), Diamondback Energy (FANG) and Ford Motor Co. (F)
Dividend yield: 3.2 percent
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.
Investing in value ETFs can be an easy way to invest in stocks thought to be undervalued by the market. By owning a basket of these stocks through an ETF, you can avoid the heavy research that is usually required to buy individual stocks. You’ll also get the benefits of diversification by owning stocks across different industries that generally trade for below-average multiples of earnings and assets.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
