Investors love value stocks for one primary reason – they are underpriced but with very high potential. Value ETFs offer such investors more affordable and convenient access to value stocks. In addition, these passively-managed assets often invest in a basket of stocks across different sectors and companies with true fundamentals.
Ready to add a few value ETFs to your portfolio? This article will save you many hours of research and tedious comparison. I have carefully curated the content to offer excellent insights into value investing, including why you should invest in value ETFs and how to choose the most suitable option from my rich list of recommendations.
If you are ready, let’s get to it!
Key Takeaways
Below are the key takeaways from this article. It will come in handy if you have no time to read the entire piece.
- The 9 best value ETFs are AVDV, RPV, FNDE, VTV, VONV, VLUE, SPYV, EFV, and DGS.
- Value stocks are attractive because they offer investors the chance of generating outsized returns due to their underpriced nature.
- Investing in value ETFs is an effective way of investing in value stocks (stocks of relatively unpopular but potentially valuable companies).
- Value ETFs invest in several value stocks instead of individual value stocks. Therefore, they are more diversified and less volatile.
- Each fund adopts a specific investment strategy or factor type to achieve its investment goals.
- Therefore, investors must assess each value ETF to see which best reflects their investment beliefs and goals.
What Are Value ETFs?
Value exchange-traded funds (ETFs) have not been the favorites, but they have been in the limelight for the past few years. Until 2020, the investment landscape was more about growth stocks, but the pandemic and the economic impacts turned things around. As a result, investors now look to maximize the potential of this crop of stocks to generate oversized returns.
Exchange-traded funds (ETFs) are designed to invest in a basket of stocks. So, a value ETF invests in multiple value stocks. But what are value stocks? These are shares of a company trading at a lower price than its dividends, earnings, sales, and other fundamentals. They are often characterized by high dividend yield, low price-to-earnings (P/E) ratio, and low price-to-book (P/B) ratio. In addition, these stocks’ equity prices are lower than those of other companies in the same sector or industry. You may also find value stocks in a sector trading at a discount compared to the general market.
Small-Cap, Mid-Cap, and Large-Cap Value ETFs
We now know what value ETFs are all about. Let’s take it a step further by discussing their types. Value ETFs are of three major types – small-cap value ETFs, mid-cap value ETFs, and large-cap value ETFs. All three invest in collections of value stocks but with slight differences.
Small-cap value ETFs only invest in stocks of small-cap companies, i.e., companies with a market valuation of $300 million to $2 billion.
Mid-cap value ETFs put their money on stocks of medium-sized companies, which are often cheaper with steady growth. The market cap of such companies is between $1 billion and $8 billion.
The third type, large-cap value ETFs invest in stocks of big companies that are cheaper but with slower growth than other large-cap stocks. These companies are in the top 70% of the equity market capitalization, with a market cap of over $8 billion
Why Should You Invest In Value Stocks Through Value ETFs?
Investors will only consider value ETFs if they are interested in value stocks and, by extension, value investing. If you are here, you are most likely a value investor. Value investing is all about scouting for undervalued stocks trading for less than their intrinsic values. While there are a few value investing principles, the underlying principle remains the same.
You can pursue your interest in value investment via different investment vehicles. But why choose value stocks and value ETFs?
Excellent path to profits from stocks
Investors looking for the best path to stock market profits will find value stocks a good option. The future growth potential and lower costs of these companies will set you up for a rewarding ride, even in the face of short-range market dips.
Easy access to value investment
Also, Investing in value ETFs makes value investment in stocks accessible to every investor, both rich and poor. You can get into value stocks through value ETFs regardless of your investment capital.
Maximize the power of compounding
Investing in value ETFs is a way to maximize the power of compounding. Reinvesting your returns and dividends from value stocks ensure your portfolio grows exponentially over time with no additional work.
Lower risk and volatility
Value investing through value stocks is far less risky and volatile than other short-term investment options. It gets even better when you invest in them through value ETFs. ETFs are originally flexible, diversified, less risky, and cheaper. The combination of these perks with the low risk and volatile nature of value stocks makes value ETFs a much better value investment option.
Less rigorous research
It takes time to figure out which individual value stocks to put your money into. Value ETFs eliminate this downside by enabling you to invest in many quality individual stocks simultaneously. The presence of more options also contributes to improved diversification.
Let me quickly add this: value ETFs are not perfect, despite all the benefits highlighted above. You must have the investor’s mindset to allow things to run over the long term, especially in the face of market dips and shakeups.
9 Must-Have Value ETFs For Your Portfolio
Next is my carefully-researched and curated list of the value ETFs you should consider for your portfolio. These funds are issued and managed by reputable names in the industry and are unique in their different ways.
1. Avantis International Small Cap Value ETF (AVDV)
We are starting the list with the Avantis International Small Cap Value ETF (AVDV), a value ETF launched in September 2019. It invests in a broad set of non-US developed small-cap companies. If you are looking for exposure to small-cap developed market equities outside the United States, this is your go-to ETF. It is an actively-managed fund, and it tracks no index.
As an international ETF, the 488 underlying holdings of AVDV are spread across different sectors and countries. Japan holds 25.8%, followed by the United Kingdom and Canada at 14.4% and 11.5%. When it comes to industries, the fund favors Industrials (19.2%), Financials (18.3%), Materials (16.9%), Consumer Discretionary (12.1%), and Energy (11.8%) sectors.
AVDV does not integrate the ESG criteria. It has $1.5 billion in assets under management and an expense ratio of 0.36%.
2. Invesco S&P 500 Pure Value ETF (RPV)
Invesco is another major issuer of ETFs in the market, and the S&P 500 Pure Value ETF (RPV) is one of its top offerings. As the name suggests, RPV is based on the S&P 500 Pure Value Index, measuring the performance of stocks with strong value characteristics in the S&P 500 Index. This fund’s P/E and P/B ratios are 9.73% and 1.49%, respectively.
This pure value’s 122 holdings are spread majorly in large-cap value and mid-cap value stocks – 31.93% and 45.02%, respectively. The major five sectors it invests in include Financials (29.1%), Healthcare (12%), Consumer Staples (10.3%), Energy (8.99%), and Materials (6.98%). In terms of performance, the fund has returned 8.50% since its inception in 2006, compared to S&P 500 Value Index’s 7.07%.
It currently has $3.3 billion in assets under management and an expense ratio of 0.35%.
3. Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)
The goal of FNDE is to replicate the performance and returns of the Russel RAFI Emerging Markets Large Company Index. It is one of the two emerging market value funds on this list, offering investors access to the largest companies in emerging markets according to fundamental measures.
FNDE adopts a contrarian investment strategy using an index with a proven track record. If you want to add a passively-managed diversified value fund to your portfolio, this ETF offers the potential for value and yield factor exposure. It was launched in 2013 and has amassed over $4 billion in assets.
The top emerging markets covered in FNDE’s portfolio include Hong Kong, Taiwan, Brazil, India, and Russian Federation. Finance, Energy Minerals, Electronic Technology, and Non-Energy Minerals are the major sectors. The five-year return of FNDE is 2.29%, about 0.4% higher than the MSCI Emerging Markets Large Cap Index returns within the same period.
FNDE has an expense ratio of 0.39%.
4. Vanguard Value ETF (VTV)
The first of the two Vanguard value ETFs on the list is the Vanguard Value ETF (VTV). The fund seeks to replicate the performance of the CRSP U.S. Large Cap Value Index, thus measuring the investment return of large-cap value stocks. In terms of its average P/E and P/B ratios (15.8 and 2.6, respectively), the fund overs a good exposure to the value factor. Its P/E and P/B ratios are lower than S&P 500, although this is expected considering the broader nature of the latter.
There are 349 stocks in VTV’s portfolio and total net assets of $150.7 billion. Its top five sectors are Healthcare (20.0%). Financials (19.3%), Industrials (13.0%), Consumer Staples (11.0%), and Energy (8.6%). The top holdings in VTV’s portfolio include Berkshire Hathaway Inc., Johnson and Johnson, UnitedHealth Group Inc., Exxon Mobil Corp, and JPMorgan Chase & Co.
VTV is a proven performer. Since its launch in 2004, this fund has delivered a 326.69% in returns and 204.37% in the last ten. This is also not unconnected to its massive growth over time. The fund currently has $150 billion net assets, making it the biggest value ETF on this list. Its expense ratio is 0.04%.
5. Vanguard Russell 1000 Value Index Fund ETF (VONV)
Unlike VTV, the Vanguard Russel 1000 Value Index (VONV) ETF holds more stocks – over 850 – offering higher diversification to investors. The fund seeks to track the performance of the Russel 10000 Value Index, which is a popular yardstick for the returns of large-cap value U.S. Stocks. There is only a slight difference between the top holdings of VTV and VONV. The same is obtainable when you compare their P/E and P/B (16.1 and 2.4, respectively). Despite their functional similarity, VTV and VONV track different indexes. This makes VONV a tax-loss harvesting partner for VTV.
VONV currently has over $9 billion worth of assets under management and an expense ratio of 0.08%.
The iShares MSCI USA Value Factor ETF (VLUE) is a passively-managed fund tracking the MSCI USA Enhanced Value Index, comprising a blend of large- and mid-cap stocks with lower valuations and value characteristics based on fundamentals. It was launched in April 2003 and has 150 holdings across different sectors.
In terms of performance, VLUE has returned 9.17% since its inception and 6.52% in the last three years. In that period, it has performed slightly better than its benchmark. The P/B and P/E ratios of VLUE are 1.50 and 9.06, respectively. It has 100% ESG coverage, an AA rating, and a score of 7.4 out of 10.
The major sectors in VLUE’s portfolio include Information Technology (26.6%), Healthcare (15.6%), Consumer Discretionary (10.8%), Financials 10.8%), and Communication (9.1%). Its net assets are worth $8 billion with an expense ratio of 0.15%.
The iShares MSCI EAFE Value ETF (EFV) offers access to a particular group of EAFE stocks. Therefore, it tracks the investment results of an index, the MSCI EAFE Value Index, which comprises developed market equities outside Canada and the United States with value characteristics. So, if you want your stock portfolio to tilt towards international value stocks, EFV is your guy.
It was launched in July 2022 and already had over $13 billion in assets under management. Its P/B and P/E ratios are 9.67% and 1.10%, respectively. It has a better MSCI ESG score than VLUE, 9.8, but the rating is the same. As an international value stock, the major holdings of VLUE are in Japan, the United Kingdom, Germany, France, and Australia. Its top sectors are similar to VLUE’s, but EFV is more expensive, with an expense ratio of 0.35%.
8. SPDR Portfolio S&P 500 Value ETF (SPYV)
The eighth entry on the list is the SPDR Portfolio S&P 500 Value ETF (SPYV). It replicates the investment returns that correspond to that of the S$P 500 value index, comprising large-cap value stocks of the U.S. equity market. The building blocks of this fund’s portfolio include relatively undervalued S&P 500 companies chosen according to their P/E, P/E, and P/S ratios.
The top sectors covered in SPYV’s portfolio include Healthcare (17.5%), Financials (14.5%), Consumer Staples (11.8%), Industrials (11.8%), and Information Technology (11.3%). SPYV has returned 6.49% since its inception in 2000. In the last five years, it has returned 8.12% and 8.17% in the last three years. These numbers are very close to the S&P 500 value index, which is the benchmark.
The assets under management are worth over $12 billion, and the expense ratio is 0.04%.
9. WisdomTree Emerging Markets SmallCap Dividend Fund (DGS)
Last on the list is DGS – the Emerging SmallCap Dividend Fund ETF issued by WisdomTree. The fund seeks to track the investment results of small-cap companies in emerging markets. Therefore, it follows a fundamentally weighted index – the WisdomTree Emerging Markets Small Cap Dividend Index, which comprises companies within the bottom 10% of the total market capitalization of WisdomTree Emerging Markets Dividend Index.
It was launched in 2007 and has returned an outstanding 47.2% since inception. It has returned 4.01% before tax in the last ten years, making it a decent performer. The major emerging markets covered by this portfolio include Taiwan, China, South Korea, South Africa, India, and Thailand. The weight of the top 10 within the portfolio is 8.48%, translating to significant diversification.
DGS’s total assets under management are worth over $2 billion, and its expense ratio is 0.58%.
Choosing The Best Value ETF For Your Portfolio
It is practically impossible to add all nine recommendations to your portfolio. So, you have to choose the funds that work best for you. Start by determining the market segment you want exposure to, then compare the funds based on their underlying indices. The goal is to find the value ETF that best track your market segment. If you end up with multiple options, consider the fund size and age, sectors covered, weightings, and ongoing charges.
Final Verdict
It’s been a long but enjoyable ride. We started by describing value investing and how you can engage in value investing through value stocks. Value ETFs are an efficient means of adding value stocks to your portfolio. Their diversification and low volatility will benefit your portfolio greatly, while the low costs help you minimize your overall expenses and maximize returns.
All the nine value ETFs discussed in this article cover different market segments and various market capitalization levels. The investing strategies also vary. So, you must assess them and see which options best reflect your investment goals and method. Whichever you end up with, you can rest assured of adequate overall exposure to value investment.
Finally, if you find this review informative, I encourage you to check out more index fund reviews on our website.
Good luck!