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Home US Stock Market

The Best Value ETFs Of August 2023

August 2, 2023
in US Stock Market
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Value exchange-traded funds simplify the challenging, research-intensive process of finding stocks that are underpriced by markets. Value stocks trade at prices below their perceived intrinsic value, which is just another way of saying that they can be great bargains.

Despite recent evidence to the contrary, value stocks have outperformed growth stocks over the long term. According to a study by Dimensional Funds, value stock returns between 1927 and 2021 averaged 4% higher than growth stock returns.

Our list of best value ETFs includes options for every type of investor, from those who adhere to a passive indexing approach to people who are itching to outperform the market. We’ve also included several international funds, since overseas stocks can be valued substantially below comparable U.S. equities.

The Best Value ETFs of August 2023

Fund Expense Ratio
SPDR Portfolio S&P 500 Value ETF (SPYV) 0.04%
Fidelity Value Factor ETF (FVAL) 0.29%
Invesco FTSE RAFI Developed Markets ETF (PXF) 0.45%
Vanguard International High Dividend Yield ETF (VYMI) 0.22%
Invesco S&P MidCap Value with Momentum ETF (XMVM) 0.39%
Vanguard Mid-Cap Value ETF (VOE) 0.07%
Vanguard Small-Cap Value ETF (VBR) 0.07%

SPDR Portfolio S&P 500 Value ETF (SPYV)

Expense Ratio

0.04%

Dividend Yield

1.88%

5-Year Avg. Annualized Return

10.42%

SPDR Portfolio S&P 500 Value ETF (SPYV)
Why We Picked It

Investors seeking the best low-fee value ETF, look no further. The SPDR Portfolio S&P 500 Value ETF screens the stocks included in the S&P 500 for value metrics, and then it ferrets out those that meet their criteria. As you’d expect with an S&P 500 value fund, the 445 companies owned by this ETF have a hefty average market cap of $165 billion.

SPYV has the lowest expense ratio on the list and offers dependable access to the large-cap value universe. The top three holdings make up 8% of the fund’s portfolio: Berkshire Hathaway, Johnson & Johnson and Exxon Mobil. The rock-bottom expense ratio helped the fund lap its average peer return by 1% from January 2011 through March 2022. If you’re looking to tap large-cap value stocks, SPYV is a sound choice.

Fidelity Value Factor ETF (FVAL)

Expense Ratio

0.29%

Dividend Yield

1.65%

5-Year Avg. Annualized Return

10.51%

Fidelity Value Factor ETF (FVAL)
Why We Picked It

Thanks to the recent downturn in markets, many former growth stocks  have become value plays. The Fidelity Value Factor ETF seeks out profitable companies featuring sound growth prospects, respectable balance sheets and value pricing. The fund’s long-term earnings growth rate of 14% is higher than the 11.4% category average, which might account for decent three- and five-year annualized returns.

Heavily weighted toward technology, healthcare and financial stocks, FVAL has benefited from strength in these sectors. Similar to many large-cap peers, the fund’s top ten holdings include well known names like Apple, Microsoft, Amazon, Alphabet and Johnson & Johnson.

Invesco FTSE RAFI Developed Markets ex-U.S. ETF (PXF)

Expense Ratio

0.45%

Dividend Yield

3.17%

5-Year Avg. Annualized Return

4.68%

Invesco FTSE RAFI Developed Markets ex-U.S. ETF (PXF)
Why We Picked It

The Invesco FTSE RAFI Developed Markets factor strategy ETF starts with a pool of 1,000 developed market stocks from the FTSE RAFI Developed ex U.S. 1000 Index, and then ranks them according to their fundamentals. The strategy attempts to beat the returns of the unmanaged index of developed market companies. The four ranking factors—book value, cash flow, sales and dividends—represent characteristics that can lead to strong long-term returns.

PXF is an international value fund that includes a smattering of blend and growth companies. Three energy companies make up 7% of the fund, while Japanese firms comprise 19%, with the UK, France, and Canada representing roughly 10% allocations each. Investors who want international exposure, strong dividends and the opportunity for capital growth might appreciate this option.

Vanguard International High Dividend Yield ETF (VYMI)

Expense Ratio

0.22%

Dividend Yield

4.36%

5-Year Avg. Annualized Return

4.84%

Vanguard International High Dividend Yield ETF (VYMI)
Why We Picked It

The Vanguard International High Dividend Yield ETF is a passively managed index fund that owns global companies based outside of the US that deliver above-average dividend yields. It owns 1,326 companies located in both developed and emerging-market countries with an average market cap of $37 billion and an average 8.1% earnings growth rate. The portfolio holds predominantly high-quality, low-volatility stocks.

From February 2016 through July 2022, VYMI outperformed its benchmark index by more than one percentage point, and also delivered lower volatility. Since 2018, the fund also outperformed its overall category average.

VYMI allocates 21.70% of the fund to emerging markets, 42.8% to Europe, 26.10% to the Pacific and 8.80% to North America. Investors looking for reasonable fees and companies with good dividends might consider this international value fund.

Invesco S&P MidCap Value with Momentum ETF (XMVM)

Expense Ratio

0.39%

Dividend Yield

1.63%

5-Year Avg. Annualized Return

10.98%

Invesco S&P MidCap Value with Momentum ETF (XMVM)
Why We Picked It

You might call this strategy ETF a “have your cake and eat it too” fund. Value investing tends to pay off handsomely over the long run, while momentum investing provides higher short-term returns. The combination of both strategies has the potential to offer better returns than a straight value approach.

The Invesco S&P MidCap Value with Momentum ETF begins by screening S&P MidCap 400 companies for stocks with the highest value and momentum scores. The result is a group of equities that represent the best of both value and momentum.

In contrast to its category peers, the fund is overweight financial services and basic materials, and less allocated to healthcare and industrials. Investors can expect some volatility with this holding, but also the opportunity to outperform the typical mid-cap value fund.

Vanguard Mid-Cap Value ETF (VOE)

Expense Ratio

0.07%

Dividend Yield

2.27%

5-Year Avg. Annualized Return

7.21%

Vanguard Mid-Cap Value ETF (VOE)
Why We Picked It

Cost-sensitive investors should check out the Vanguard Mid-Cap Value ETF. This passively managed index fund captures the returns of mid-cap value stocks. Populated with larger firms than XMVM, the median market cap of the 197 companies within VOE is nearly $23 billion. VOE tracks the CRSP US Mid-Cap Value Index.

Fifty-eight percent of VOE is concentrated in financials, consumer discretionary stocks, utilities and industrials. The broad diversification of the fund ensures that no single holding will overly influence the fund’s returns. As the performance and nearly 2.0% dividend yield demonstrate, the mid-cap value asset class offers reasonable growth along with decent cash flow.

Vanguard Small-Cap Value ETF (VBR)

Expense Ratio

0.07%

Dividend Yield

2.10%

5-Year Avg. Annualized Return

6.83%

Vanguard Small-Cap Value ETF (VBR)
Why We Picked It

We haven’t managed to find a more cost-effective, high-return, small-cap value option than this ETF. If you’re looking to capture this segment of the market, with a proven long-term record of outperforming other market sectors, the Vanguard Small-Cap Value ETF is a solid pick. With 877 small cap value stocks, an average earnings growth rate of 12.7%, and a low 10.3 P/E ratio, VBR appears poised to continue delivering value.

Growth stocks trounced value over the last decade, but the trend has shifted. During the past two years VBT outperformed the Vanguard Small Cap Growth Fund (VBK) by nearly 30%. Like several of our other value picks, you’ll find high concentrations in the financials and industrial stocks, at 23% and 21%, respectively. Together a 13.8% allocation to consumer discretionary, these three sectors account for 58% of the portfolio.

Touted as one of the original outperforming components of the three-factor model, created by Nobel Laureates Eugene Fama and Kenneth French, small cap value is a great addition to a diversified investment portfolio..

Methodology

Our selection of the best value ETFs includes both passive and active funds that employ a range of strategies to invest in undervalued stocks.

We began by screening for U.S. and international funds with silver or gold Morningstar rankings, and four- or five-star Morningstar analyst ratings. We then eliminated any funds with expense ratios above 0.69%, which provided a preliminary list of 41 options. After sorting by category, we analyzed index, factor, actively managed, small-, mid- and large-cap value funds.

The final seven picks charge below-average fees and demonstrate long-term performance above their peers. We’ve included three Vanguard passive funds and several factor funds that isolate specific characteristics that outperform market averages. Dividend lovers will find several high-yield offers, and those looking to fill an international gap in their portfolios will find two good options.

To learn more about our rating and review methodology and editorial process, check out our guide on How Forbes Advisor Rates Investing Products.


What Is Value Investing?

Everybody knows that big-ticket items like televisions and laptops always go on sale, eventually. Savvy shoppers save their money and wait for the sales, rather than paying full price right now. And that’s not a bad way to understand value investing: Buying stocks on sale, only when they’re priced at a discount, then waiting for them to rise over time to match their true value.

Our analogy only goes so far, of course. Sales come pretty often, and it’s not hard to discern both the full price for the TV you have your eye on or what sort of discount makes for a great deal. Value investing is much more challenging, and it requires plenty of research and detective work to uncover which stocks are value buys and what their “true” price should be—their so-called intrinsic value.

Value investors believe the stock market overreacts to the news and events that impact individual companies. They feel that short-term developments drive moves in stock prices that don’t always reflect a company’s long-term fundamentals. Going deep to research those fundamentals—things like P/E, P/B and book value—helps value investors understand the intrinsic value of a company and see whether the current market price is in line with that value or trading at a steep discount.

For value investing, the bigger the difference there is between a stock’s intrinsic value and its current market price, the greater the opportunity. But even then, not every value stock will see its market price rebound to match what an investor believes is its intrinsic value, making value investing a tricky proposition that’s far from a sure bet in every case.


How Do Large-Cap Value ETFs Work?

Large-cap value ETFs track an underlying index that aims to mirror the performance of a group of undervalued, large-cap stocks. While these ETFs share common characteristics, there can be significant differences between the indexes they track. For example, each index defines differently how it measures value. While the metrics vary from one index to another, most include factors such as P/E and P/B.

The ETFs on this list show a wide variance when it comes to these measures of value. For example, the average P/E of the funds in our list range from under 13 to more than 18. These differences should be considered as one evaluates which funds may be appropriate for a portfolio—remember, lower P/E ratios may indicate better value for investors.

Each index can also vary based on the average market capitalization of its component companies. The funds on our list vary from an average market cap of about $62 billion to a high of more than $100 billion.

Source

Tags: 2023augustbestetfsmarketstockthevalue
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