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 with similar businesses 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.
- Value stocks outperformed the broader market over the past 12 months.
- The value exchange-traded funds (ETFs) with the best one-year trailing total returns are FXU, RDIV, and DVY.
- The top holdings of these ETFs are Waste Management Inc., Cardinal Health Inc., and Altria Group Inc., respectively.
There are 38 smart beta value ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as ETFs with less than $50 million in assets under management (AUM). For the purposes of our value ETFs list, Investopedia focuses only on smart beta funds that follow a specific value strategy instead of funds that happen to own a large number of value stocks at this point in time. Not all funds are pure value plays since a majority of them use multiple strategies or factor types.
Value stocks, as measured by the S&P 500 Value Index, have outperformed the broader market over the past 12 months, with a total return of -0.9% compared with the S&P 500’s total return of -8.1%, as of Sept. 9, 2022. The best-performing value ETF, based on performance over the past year, is the First Trust Utilities AlphaDEX Fund (FXU).
We examine the three best value ETFs below. All numbers below are as of Sept. 8, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
- Performance over one year: 13.1%
- Expense ratio: 0.64%
- Annual dividend yield: 2.13%
- Three-month average daily volume: 140,364
- Assets under management: $477.0 million
- Inception date: May 8, 2007
- Issuer: First Trust
FXU is an exchange-traded fund that tracks the StrataQuant Utilities Index, a benchmark that uses a quantitative methodology to select utilities stocks from the Russell 1000 Index. Securities comprising this index are ranked separately based on growth and value factors. The fund's large exposure to the utilities sector offers investors companies with high dividend yields that tend to perform well during recessions. Over 62% of the fund's holdings are allocated to the electricity industry. Gas and water utilities and waste and disposal services are among the stocks that represent the remaining third of assets.
The top holdings of FXU include Waste Management Inc. (WM), a waste management and environmental services company; Republic Services Inc. (RSG), a waste disposal and recycling company; and NRG Energy Inc. (NRG), an energy generation, distribution, and services company.
- Performance over one year: 8.0%
- Expense ratio: 0.39%
- Annual dividend yield: 4.67%
- Three-month average daily volume: 61,700
- Assets under management: $808.7 million
- Inception date: Sept. 30, 2013
- Issuer: Invesco
RDIV tracks the S&P 900 Dividend Revenue-Weighted Index, an index of securities in the S&P 900 selected by dividend yield and other factors. Financials stocks make up the largest part of the portfolio at about 22.6%, followed by utilities and healthcare companies. Large-cap value and mid-cap value stocks account for a total of 72% of the portfolio.
The top holdings of RDIV include Cardinal Health Inc. (CAH), an American-Irish healthcare services company; Chevron Corp. (CVX), a global energy company; and Valero Energy Corp. (VLO), a maker of transportation fuels and related products.
- Performance over one year: 6.2%
- Expense ratio: 0.38%
- Annual dividend yield: 3.16%
- Three-month average daily volume: 886,539
- Assets under management: $21.8 billion
- Inception date: Nov. 3, 2003
- Issuer: BlackRock Financial Management
DVY seeks to track the Dow Jones U.S. Select Dividend Index, an index comprised of dividend-paying U.S. equities. Companies included in the index exist across the market cap spectrum and have at least a 5-year record of consistent dividend payments. Utilities stocks make up 28.5% of the portfolio, followed by financials and consumer staples stocks.
The top holdings of DVY include Altria Group Inc. (MO), a maker of tobacco and cigarette products; Valero Energy; and International Business Machines Corp. (IBM), a computer hardware, software and cloud services company.
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