Value investing focuses on finding undervalued stocks that have the potential for growth. This potential is determined by examining the fundamentals of the company and comparing the firm with other businesses that have similar fundamentals. Value ETFs enable an investor to buy numerous value stocks all at once.
All of these ETFs have a very tight focus—that focus has nothing to do with any particular industry and everything to do with equities that the market has overlooked or unfairly devalued. The funds limit their selections further by considering the size of the companies involved, whether mid cap or small cap. Despite the focus, all of these ETFs may, from time to time, invest in securities outside of the indexes they follow. Money managers do this to maintain the risk and return profile of their portfolios so that they more closely match the results of the indexes.
It should be noted that ETFs can be undervalued, just like stocks. Several of the ETFs on the list have dropped in price and may be attractive to investors who want to buy a fund while its price is down. All figures are current as of September 10, 2018.
- Value investing involves finding undervalued stocks that might grow in the future.
- The top ETFs focus on equities that the market has overlooked or unfairly devalued.
- Like stocks, ETFs can be undervalued.
This is the closest an investor can get to a pure value play in ETFs. The stocks are selected from the S&P SmallCap 600 Pure Value Index. Out of that index, the fund selects stocks that have value characteristics. The ETF was volatile in 2017, closing out the year just above where it ended. But so far in 2018, it has risen 10.41%
2. Invesco Russell 2000 Pure Value ETF (PXSV)
This is another small-cap ETF focusing on the Russell 2000. These are the smallest companies of the Russell index. The idea here is to capture growth from up-and-coming companies that often experience their most explosive growth in their early years. The ETF fell 1.6% in 2017 and is so far up 9% year-to-date.
- Average Volume: 4,106
- Net Assets: $76.78 million
- Yield: 2.21%
- YTD Return: 9.00%
- Expense Ratio (net): 0.39%
SMDV emphasizes small companies that are growing their dividends. It can contain as few as 40 stocks. The fund strives to spread the stocks it owns across all market sectors. The ETF rose 2.7% in 2017 and is so far up 8.46% year-to-date.
- Average Volume: 26,715
- Net Assets: $443.50 million
- Yield: 1.82%
- YTD Return: 8.46%
- Expense Ratio (net): 0.40%
RFV has an even tighter focus on mid-cap value stocks than RZV, selecting stocks from the S&P MidCap 400 Pure Value Index. The ETF rose 12.3% in 2017 and is so far up 5.09% year-to-date.
- Average Volume: 3,939
- Net Assets: $112.91 million
- Yield: 1.17%
- YTD Return: 5.09%
- Expense Ratio (net): 0.35%
This ETF gives investors exposure to the S&P while focusing on value investing. SLYV generally maintains all of its assets in S&P 600 securities, although it may invest as little as 80% of assets in those securities. The ETF rose 5.64% in 2017 and is so far up 13.27% year-to-date.
- Average Volume: 245,369
- Net Assets: $2.08 billion
- Yield: 1.43%
- YTD Return: 13.27%
- Expense Ratio (net): 0.15%
The Bottom Line
Equities of large-cap companies can be value stocks, but the market tends to treat big firms more fairly and is less likely to overlook them. Smaller companies often fly under the radar, and their stocks can suffer because many investors just don't pay attention to them. That makes them a value play.
The ETFs on this list search for these companies. Individual investors get the protection of owning several value stocks. If one fails, another may outperform, thus maintaining the average return for the ETF portfolio.