Last week, we looked at 9 favorite ETFs for income investors. Now, we turn to our contributors for some top ETF ideas for value investors. Although value has been out-of-favor relative to growth in recent years, more cautious advisors are increasingly looking towards value.


David Fabian, Flexible Growth & Income Report

Classifying stocks as either growth or value is one of the oldest and most studied fundamental investment pillars. This process traditionally involves the analysis of various balance sheet statistics to determine a company’s intrinsic net worth relative to its peers and historical benchmarks.

Being that “value” is such a sought-after characteristic, it’s no surprise that over 50 exchange-traded funds are dedicated to the pursuit.

Value purists may scoff at the larger and more diversified of these funds in favor of deeper analysis and a smaller pool of stocks with the capability to show off what this factor is all about. Fortunately, there are several ETFs that bring the true spirit of value investing back to its roots.

ValueShares U.S. Quantitative Value ETF (QVAL) is the flagship fund of Alpha Architect, an independent ETF sponsor created by Wesley Gray PhD  and Jack Vogel PhD. 

Both gentlemen have forgotten more about fundamental value characteristics than I will ever be able to remember. As such, they are a perfect team to construct a quantitatively driven portfolio of stocks by identifying attractive fundamental criteria.

This is an index-based ETF with just 40 holdings that are roughly equal weighted in the portfolio structure. This allows for each stock to have a similar contribution to the total return of the fund rather than giving larger companies the lion’s share of the assets.

To be included in the fund's portfolio, stocks must meet forensic accounting, valuation, and quality screens to ensure minimum requirements are met. This ETF is on the eve of celebrating its third birthday and charges an expense ratio of 0.79% for ongoing management of the strategy. 

Any fund with the phrase “pure value” in its title is tailor-made for this list. Guggenheim S&P 500 Pure Value ETF (RPV) is an index-based ETF that owns around 100 value stocks culled from the broader S&P 500 Index. 

What makes this fund unique is that it puts a more stringent valuation screen to the broader universe to rule out blended or ambiguous style approaches.

Another feature of the portfolio is that it weights holdings according to the highest value scores. This creates a stronger influence of larger and more stable companies such as Berkshire Hathaway (BRK.B). The ETF has been in existence for over a decade now and has accumulated nearly $900 million in assets. 

The fund also charges a very reasonable expense ratio of 0.35%. This type of fund may appeal to value enthusiasts as either a core holding or a tactical position to strategically target fundamental criteria. 

Cambria Global Value ETF (GVAL) is a far different type of index fund, with a high degree of emphasis on foreign holdings. The fund selects stocks showing strong value characteristics across a universe of 45 countries. This includes both developed and emerging market exposure to provide a truly global exposure profile.

It currently holds just over 140 stocks with a high degree of concentration in Austria, Portugal, Russia and Greece, according to the recent fact sheet.  This list is loaded with countries that experienced difficult periods in recent years and have recently become popular with the strong trend in emerging market equities.

The Cambria Global Value screening criteria is such that it will often weight out-of-favor stocks with attractive fundamentals given the expectation of stronger future returns. 

This can potentially lead to above-average volatility, but also a unique return profile that may fit well as a slice of international stock exposure. GVAL carries an expense ratio of 0.69% and pays quarterly dividends to its shareholders.


Jim Woods, Successful ETF Investing

Exchange-traded funds such as the Vanguard Value ETF (VTV) allow investors to access multiple stocks deemed undervalued by the market while requiring minimal personal research. Buying undervalued investments is called “value investing,” a time-honored strategy that has been employed by conservative investors for many years.

Brought to the forefront of investors’ awareness by well-known investor and author Benjamin Graham and his classic book "The Intelligent Investor," value investing uses fundamental analysis to determine when stocks are potentially undervalued by the market, making them ripe to rise when that irrationality is resolved.

By contrast, growth investing aims to pick stocks that have demonstrated better-than-average gains in earnings and are expected to keep delivering high levels of profit growth. But there are no guarantees. As a result, growth stocks tend to be more volatile than their value-based counterparts.

Vanguard Value, as one of the largest value ETFs, invests in a spread of more than 330 positions. This significant diversification means that its return is tied more to the success of the strategy than any one stock’s performance. However, the fund does weight holdings by market cap, which makes it a somewhat stable ETF.

Since 2017 has been a good year for the market and especially growth stocks, it is no surprise that Vanguard Value has slightly underperformed the S&P 500 in the past 12 months to gain around 10% and 7% year to date.

However, value stocks likely will gain favor again at some point, so this fund could have another day in the sun. Assets under management total $32 billion and the fund pays a respectable 2.4% dividend yield. Fittingly, VTV’s expense ratio is only 0.06%. The most represented sectors are financials, healthcare and technology.

If you believe in the principle of “buy low and sell high,” consider investing in value stocks. To avoid tying your fortune to only a few companies, the Vanguard Value ETF lets you invest in one fund and gain exposure to all of the stocks in its portfolio.


Richard Moroney, Dow Theory Forecasts

Investors seeking to diversify a stock portfolio with index funds can consider two value-oriented exchange-traded index funds, each of which serves a different purpose.

With an impressive fund score of 95 (out of 100), Vanguard Mid-Cap Value Shares (VOE) holds nearly 210 stocks, with financials representing 22% of the portfolio and consumer discretionary 19%. The ETF ranks among the top 16% of its category for five-year and 10-year performance.

Up 10.9% in 2017, the fund has outpaced its peer group by nearly three percentage points. A four-star fund according to Morningstar, Vanguard Mid-Cap Value has a modest annual expense ratio of 0.07%, versus the category average of 0.41%. Low expenses help minimize tracking error versus the underlying index. The fund is a member of our Growth and Conservative portfolios.

Vanguard Small-Cap Value Shares (VBR) ranks among the top 25% of its peer group for three-year, five-year and 10-year total returns. Boasting a fund score of 95, the ETF invests in more than 840 stocks. Its holdings have a median market capitalization of $3.7 billion, compared to $92.1 billion for the S&P 500.

Major sector weightings are financials (19% of assets) and industrials (18%). So far this year, the fund has risen 6.7%, versus 4.0% for its category. At 0.07%, the expense ratio is 82% below the category average. The ETF is a component of both recommended fund portfolios.

For bond investors seeking an all-weather holding, we recommend Vanguard Total Bond Market (BND). The fund invests in nearly 8,250 securities, including government, corporate, foreign and mortgage-backed bonds. The ETF, yielding 2.5%, has gained 3.3% this year, while the 10-year annualized return is 4%. The expense ratio is only 0.05%.

With the Federal Reserve signaling the potential for rate hikes, investors need to know that bond prices tend to move in the opposite direction of rates.

Still, the fund offers dependable income and a way to preserve wealth — attractive qualities for conservative investors. Since its 2007 inception, the fund has had one down year, a modest 2.1% decline in 2013.


Carla Pasternak, Dow Theory Letters

PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD) is designed to provide a robust income stream and stable returns regardless of the ups and downs of the capital markets. It invests in a portfolio of 50 S&P 500 stocks with above-average dividend yields and below-average volatility.

Many of the large and mid-cap stocks that comprise this portfolio are also strong dividend growers. More importantly, the strong dividend growers in this portfolio should support ETF returns that positively correlate with higher bond yields in a rising rate environment.

Dividends have grown 46% in only four years, from $1.03 in 2013 to $1.50 in 2016. They are doled out in monthly in payments of $0.09 and $0.12 per share. The last 12 monthly payments, including 10 months in 2017 and the last two months of 2016, totaled $1.46 per share, giving a yield of 3.5%.

Payouts comprise dividend income that should qualify for the reduced dividend tax rate, making the ETF suitable for a taxable brokerage account. An annual expense ratio of just 0.30% takes a tiny bite out of total investment returns.

As the Low Volatility in the name of this ETF implies, share price returns do not swing wildly up and down. As measured by beta, volatility is 0.64, meaning returns have been 36% less volatile than S&P 500 stocks over the last three years. For every 1% move up or down in the broader market, SPHD moves only 0.64%.

Despite low volatility, strong returns propelled SPHD to the top 1% of its large-cap stock fund category for the three years from 2013 to 2016. Year-to-date returns of 9% are about half those of the S&P 500.

The ETF has been an outstanding performer over the long term, ranking in the top 6% of its category for five-year returns of 15%, on pace with the S&P 500. SPHD should continue to throw off a rising income stream that weathers well in a rising rate environment.


Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.