Value investing is the practice of identifying undervalued stocks in an effort to capitalize on the market's underestimation of their intrinsic value. Typically, investors look to a company's fundamentals, comparing them against similar businesses in order to identify potentially undervalued stocks. Value exchange-traded funds (ETFs) allow investors to buy baskets of value stocks with a single investment. An ETF can offer a more diversified way to invest in a value strategy because your money is spread across many stocks.

Key Takeaways

  • Value stocks outperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are RZV, RFV, and KBWB.
  • The top holdings of these ETFs are Veritiv Corp., Telephone and Data Systems Inc., and Wells Fargo & Co., respectively.

There are 33 distinct value ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). For the purposes of our list, Investopedia is defining value funds as smart beta funds that broadly follow a value factor strategy.

Value stocks, as measured by the Russell 1000 Value Index, have outperformed the broader market with a total return of 44.2% over the past 12 months compared to the S&P 500's total return of 39.7%, as of June 1, 2021. The best-performing value ETF, based on performance over the past year, is the Invesco S&P SmallCap 600 Pure Value ETF (RZV). We examine the 3 best value ETFs below. All numbers below are as of June 1, 2021.

Invesco S&P SmallCap 600 Pure Value ETF (RZV)

  • Performance over 1-Year: 117.7%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 0.47%
  • 3-Month Average Daily Volume: 72,531
  • Assets Under Management: $375.2 million
  • Inception Date: March 1, 2006
  • Issuer: Invesco

RZV tracks the S&P SmallCap 600 Pure Value Index, which measures the performance of securities exhibiting strong value characteristics within the S&P SmallCap 600. The ETF invests at least 90% of its assets in the securities that make up the index, providing exposure to small-cap companies that rank high among a number of value metrics, including book value-to-price ratio, earnings-to-price ratio, and sales-to-price ratio. The financials sector receives the highest allocation within the fund, followed by industrials and consumer discretionary. The fund's top three holdings include Veritiv Corp. (VRTV), a business-to-business (B2B) distribution company; CONSOL Energy Inc. (CEIX), a provider of coal mining services; and Olympic Steel Inc. (ZEUS), a processor and distributor of flat-rolled carbon, stainless steel, and tubular steel products.

Invesco S&P MidCap 400 Pure Value ETF (RFV)

  • Performance over 1-Year: 95.9%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 1.05%
  • 3-Month Average Daily Volume: 31,603
  • Assets Under Management: $204.4 million
  • Inception Date: March 1, 2006
  • Issuer: Invesco

RFV tracks the S&P MidCap 400 Pure Value Index, which gauges the performance of securities that demonstrate strong value characteristics within the S&P MidCap 400 Index. The ETF invests 90% or more of its assets in securities that comprise the index, providing investors with exposure to mid-cap companies with high rankings among several value metrics, including book value-to-price ratio, earnings-to-price ratio, and sales-to-price ratio. The financials sector receives the largest allocation within the fund, followed by consumer discretionary and information technology. The fund's top three holdings include Telephone and Data Systems Inc. (TDS), a telecommunications company; Avnet Inc. (AVT), a distributor of electrical components, semiconductors, and other computer products; and Commercial Metals Co. (CMC), a manufacturer and recycler of steel and metal products.

Invesco KBW Bank ETF (KBWB)

  • Performance over 1-Year: 82.9%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 1.81%
  • 3-Month Average Daily Volume: 1,063,243
  • Assets Under Management: $2.7 billion
  • Inception Date: Nov. 1, 2011
  • Issuer: Invesco

KBWB tracks the KBW Nasdaq Bank Index, a modified-market capitalization-weighted index of companies primarily engaged in providing banking services. The ETF typically invests at least 90% of its assets in the securities that comprise the index, providing exposure to U.S. securities of national U.S. money centers, regional banks, and thrift institutions. Nearly half of its holdings are of large-cap value stocks, but the fund also invests in some mid-cap stocks as well as stocks that exhibit both value and growth characteristics. The fund's top three holdings include Wells Fargo & Co. (WFC), a provider of banking and financial services; Bank of America Corp. (BAC), a holding company that offers a range of banking and financial services; and Citigroup Inc. (C), a multinational investment bank and financial services company.

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