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.
- Value stocks underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are FXU, DFE, and IQIN.
- The top holdings of these ETFs are Exelon Corp., BE Semiconductor Industries N.V., and Daimler AG, respectively.
There are 27 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). The number of value ETFs is likely smaller than average due to the underperformance of value-based investing strategies in recent years, causing many funds to close or fall below the $50-million-AUM threshold.
Value stocks, as measured by the S&P 500 Value Index, have underperformed the broader market with a total return of -5.3% over the past 12 months compared to the S&P 500's total return of 14.0%, as of November 4, 2020. The best-performing value ETF, based on performance over the past year, is the First Trust Utilities AlphaDEX Fund (FXU). We examine the top 3 best value ETFs below. All numbers below are as of November 5, 2020.
- Performance over 1-Year: 0.7%
- Expense Ratio: 0.63%
- Annual Dividend Yield: 3.73%
- 3-Month Average Daily Volume: 67,974
- Assets Under Management: $210.4 million
- Inception Date: May 8, 2007
- Issuer: First Trust
FXU tracks the StrataQuant Utilities Index, which is comprised of utilities stocks selected from the Russell 1000 Index that meet specific criteria. The ETF is focused on mid-cap value stocks in the U.S. utilities sector. Utilities companies provide necessary services, which experience increasing demand in tandem with a growing population and are less sensitive to economic cycles. They also tend to offer high dividend yields, providing investors with steady streams of income. The fund's top three holdings include Exelon Corp. (EXC), a utility services company providing electricity and gas; Edison International (EIX), an electric power generation company; and Evergy Inc. (EVRG), a provider of electricity generation, transmission, and distribution services.
- Performance over 1-Year: -8.4%
- Expense Ratio: 0.58%
- Annual Dividend Yield: 3.04%
- 3-Month Average Daily Volume: 27,795
- Assets Under Management: $285.2 million
- Inception Date: June 16, 2006
- Issuer: WisdomTree
DFE tracks the WisdomTree Europe SmallCap Dividend Index, a fundamentally weighted index that gauges the performance of European small-cap equities that pay dividends. This value-focused ETF is concentrated on the small-cap segment of the European equity market, which provides more specific exposure to Europe's local domestic economies than large-cap funds. It also focuses on dividend-paying stocks. Industrial stocks make up about 20% of the fund's total holdings, and financial stocks and consumer discretionary stocks comprise 17% and 12%, respectively. Its top three holdings include BE Semiconductor Industries N.V. (BESI:AMS), a Netherlands-based manufacturer of semiconductor assembly equipment; Siltronic AG (WAF:ETR), a Germany-based manufacturer of hyperpure silicon wafers used in electronic devices; and bpost SA (BPOST:BRU), a Belgium-based provider of postal delivery services.
- Performance over 1-Year: -10.5%
- Expense Ratio: 0.25%
- Annual Dividend Yield: 1.99%
- 3-Month Average Daily Volume: 3,754
- Assets Under Management: $224.5 million
- Inception Date: December 13, 2018
- Issuer: IndexIQ
IQIN tracks the IQ 500 International Index, which gauges the performance of the top 500 international securities ranked according to three fundamental factors: sales, market share, and operating margin. The ETF is focused on large-cap value stocks across developed markets, seeking investment results that reflect the performance of its underlying index. The fund's top three holdings include Daimler AG (DAI:ETR), a Germany-based manufacturer of cars, trucks, and vans; Nestle S.A. (NESN:SWX), a Switzerland-based multinational packaged food company; and Mitsubishi Corp. (8058:TKS), a Japan-based general trading company engaged in the electronics, fuels, metals, machinery, chemicals, and other businesses.
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