Scalper1 News
While the U.S. stock market has shown strong resilience this year overcoming a mountain of woes, it might be on a tough ride in the months ahead. This is because rate hike now seems much closer given the robust job market and a slew of better-than-expected economic data. Inflation – an important factor in raising rates – has also started picking up slowly. In addition, lofty stock valuations, a strong U.S. dollar, an aging bull market, fading consumer confidence, slowdown in China, sluggish growth in emerging markets and Greece failure to reach a debt deal with its international creditors are weighing on investors’ sentiments, keeping the stock prices at check. Further, a sharp rise in Treasury yields in recent weeks has tempered the appeal for riskier investments as a higher borrowing cost would eat away corporate profits and hurt economic recovery. Apart from these, last week, the World Bank lowered the global growth forecast from 3% to 2.8% for this year, citing that lower commodity prices and interest rate hike risk would severely crimp growth in developing markets. The bank also downgraded its growth outlook for the world’s largest economy to 2.7% from 3.2%. Amid these uncertainties, value investing appears safe and appealing to investors. The strategy includes stocks with strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market. Why Value Investing A Better Play? Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and provides potential for capital appreciation when the stock finally reflects its true market price. As a result, value stocks have the potential to deliver higher returns and exhibit lower volatility compared to growth and blend counterparts. In fact, these stocks outperform the growth ones across all asset classes when considered on a long-term investment horizon and are less susceptible to trending markets. Given this, investors may want to consider a nice value play in the current volatile market environment. While looking at individual companies is certainly an option, a focus on cheap value ETFs could be a less risky way to tap into the same broad trends. Below we have highlighted three ETFs with favorable Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) with a Medium risk outlook that look most attractive in terms of valuation (P/E) compared to the P/E 17.09 for the broader iShares S&P 500 Value ETF (NYSEARCA: IVE ). Any of these could make for a compelling choice for a long-term portfolio. Guggenheim S&P 500 Pure Value ETF (NYSEARCA: RPV ) This ETF offers pure exposure to the large-cap value segment of the U.S. equity market by tracking the S&P 500 Pure Value Index. The fund is widely diversified across 119 securities as none of these make up for more than 2.18% of total assets. From a sector look, the ETF is heavily concentrated on financials at 34.7% while energy and consumer discretionary round off the top three spots with double-digit allocation each. The product has accumulated around $1 billion in AUM and trades in volumes of around 190,000 shares per day on average. Expense ratio came in at 0.35%. The fund has a P/E ratio of 14.73 and has added about 1% in the year-to-date time frame. It has a Zacks ETF Rank of 3. First Trust Mid Cap Value AlphaDEX Fund (NYSEARCA: FNK ) This product offers exposure to the mid-cap value sector of the U.S. equity market and employs the AlphaDEX stock selection methodology to select stocks from the S&P MidCap 400 Value Index. Holding 180 stocks in its basket, the fund provides a nice balance across each sector and securities, preventing heavy concentration. Financials make up for the top sector at roughly 17.2% share while none of the securities hold more than 1.32% share in the basket. The ETF is unpopular and illiquid in the mid-cap space with AUM of $81.8 million and average daily volume of 18,000 shares. It charges 73 bps in annual fees and expenses and has a P/E ratio of 14.51. FNK has gained 3.3% so far in the year and has a Zacks ETF Rank of 3. PowerShares Dynamic Large Cap Value Portfolio (NYSEARCA: PWV ) This fund tracks the Dynamic Large Cap Value Intellidex Index, which seeks to provide capital appreciation while maintaining value exposure. The index applies a 10-factor style isolation process and then evaluates stocks on price momentum, earnings momentum, quality and management action. This approach results in a basket of 50 securities with none holding more than 3.50% of total assets. About one-fourth of the portfolio is allotted to financials, followed by 15.9% to information technology, 10.9% to energy, and 10.2% to industrials. The fund has amassed $1.1 billion in its asset base while sees solid volume of 142,000 shares a day on average. It charges 57 bps in annual fees and has P/E ratio of 13.48. PWV is up 0.64% in the year-to-date time frame and has a Zacks ETF Rank of 3. Bottom Line Investors should note that growth stocks are currently leading the way higher in the current market. While this is true, value stocks generally outperform during periods of muted market performance, which are likely in the coming weeks especially with the collapse of the Greece deal and uncertainty surrounding the rate hike. As such, investors shouldn’t forget the value space and should take a closer look at a few of the attractive value ETFs in this segment for excellent exposure and some outperformance in the months ahead. Original Post Scalper1 News
Scalper1 News