3 Large Cap Value ETFs For Every Kind Of Investor
Large Cap Value ETFs offer great balance to go-go growth stocks. Patience is rewarded with value stocks. The market often beats down great companies to levels below intrinsic value. Most Large cap value ETFs offer familiar names trading at discounts. I am a value investor, meaning I look for stocks that the market hasn’t discovered yet or that are out of favor for some reason. The large-cap sector can provide outsized returns with reduced risk, by not buying stocks that are even close to being fairly valued. These value stocks require patience that is often rewarded, and comes without the handwringing that goes along with growth stocks. I’ve been hunting down 3 large-cap ETFs to share with aggressive investors, conservative investors, and the average investor. Why own a large-cap ETF? As mentioned, value stocks give you a hedge against taking on too much risk, and they are necessary to offset the increased risk that comes with investing in small-cap stocks that offer higher rewards but higher risk. Also you must have diversification in your portfolio. Sector outperformance occurs all the time, and the more diversification you have, the better. If you don’t have diversification, then you risk seeing your overall portfolio fall more in bad times by having your money overly concentrated. For conservative investors, have a look at the Vanguard Value ETF (NYSEARCA: VTV ). One of the cheapest ETFs in the category, it carries an expense ratio of 0.09%. Vanguard asserts that similar funds have a 1.11% expense ratio. That expense ratio is easily covered by its 2.52% yield, so you get a little spending money along with this ETF. With 318 holdings and a median market cap of $85.5 billion, you are getting the top-of-the-line companies in this ETF. The top 10 holdings only account for 25.8% of the total asset base, and they are safe and reliable investments with all the premier names you recognize. The sector diversity of the Vanguard Value ETF is impressive. It has 22% of assets invested in financials, 18% in consumer goods and services, 15% in health care, 11% in industrials, 10% in technology and 10% in energy. The rest is divided between basic materials, telecom and utilities. What I really like here is the fund has a beta of 0.98, meaning is to 2% less volatile than the broad market. However, with a Sharpe Ratio of 1.85, it has significantly enhanced risk-adjusted return compared to a risk-free investment. Here we find the kind of famous names you’d expect: ExxonMobil (NYSE: XOM ) , Microsoft (NASDAQ: MSFT ) , Johnson & Johnson (NYSE: JNJ ) , Berkshire Hathaway ( BRK ) , and Wells Fargo (NYSE: WFC ). This is a buy-and-hold fund, with only 5.5% of stocks turned over in the past year. That’s as it should be. The point is that value stocks require patience, not switching in and out of stocks. Its average price-earnings ratio is 17.9. It has a 96% total return over the past ten years. Aggressive investors should have a look at the First Trust Large Cap Value AlphaDEX ETF (NYSEARCA: FTA ) . It has 204 holdings, so it isn’t highly concentrated and therefore too risky, but it isn’t spread too thin, either. The top 10 stocks only make up 10% of the asset base, so you don’t have too much concentration risk, either. That’s why I like it – its more aggressive approach is tempered by these moves.. The expense ratio is a bit high at 0.64%, but still 47 bps below the average fund, if Vanguard is to be believed. Since inception, it has only returned 30%. However, coming off the low of the financial crisis, it is up almost 260%. The top holdings are from several different sectors. They include Tesoro (NYSE: TSO ), Edison International (NYSE: EIX ), PPL Corp. (NYSE: PPL ) and Traveler’s Companies (NYSE: TRV ). The fund has concentrated itself into six sectors: 18.5% utilities, 16% energy, 15% financials, 5% consumer discretionary, 14% industrials, and 11% IT. It carries a 3-year beta of 1.05, meaning it is only 5% more volatile than the market and comes with a Sharpe Ratio of 1.51 – meaning enhanced risk-adjusted returns compared to risk-free investments. A solid large-cap value ETF choice for the general investor is the Guggenheim S&P 500 Pure Value ETF (NYSEARCA: RPV ) . At 199 holdings, it’s a bit too concentrated that I would like, but that’s still a lot of stocks to give you diversification that you need. The top 10 stocks account for 19% of the asset base. Its expense ratio is only 0.35%. Looking at risk, its 3-year beta is 1.2, meaning it has 20% more volatility than the broad market. However, the reason I like it for average investors is that the additional volatility comes with a Sharpe Ratio of 1.92 – meaning it has an excellent risk-adjusted return. Diversification is pretty good, with 25% energy, 33% allocationin financials, 4% health care, 4% technology, 5% industrial and 16% consumer holdings. Top names include Assurant (NYSE: AIZ ), Velaro (NYSE: VLO ), Gamestop (NYSE: GME ) , and Phillips 66 (NYSE: PSX ). As with any article regarding investments, you should never rely on information you read without doing your own due diligence. My articles contain my honest, forthright and carefully considered personal opinion, and conclusions, containing information derived from my own research. This may include discussions with management. I do not repeat “talking points” but may quote management from an interview. I am never influenced by third parties in arriving at my conclusions. Do not solely rely on my articles or anyone else’s when making an investment decision. Always contact your financial advisor before investing in any security. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
