Value investing is one of Wall Street's most well-traveled strategies, and that's because it's one of the most lucrative. While the idea is simple – find great, undervalued companies and wait for Wall Street to bid them up – it's easy to stumble upon individual value traps, which may look like a bargain but are in fact poor investments. One way to reduce these land mines is by buying exchange-traded funds, via value ETFs that expose you to hundreds of stocks selected based on certain value metrics. That's immediate diversification. If investing in value ETFs sounds right for you, here are 10 of the best options out there.
WisdomTree U.S. LargeCap Dividend ETF
The WisdomTree U.S. LargeCap Dividend ETF (DLN) is among the best "value" ETFs of the list, returning around 10.6% annually over the last 10 years. This value ETF doesn't have an explicit mission to target large-cap value stocks, but it's an understandable byproduct of going after slower-growth stocks that pay dividends – such as AT&T (T) and Exxon Mobil Corp. (XOM). The fund yields nearly 3.0%, which has helped drive such a large total return over the last decade. It comes with an expense ratio of 0.28%, or $28 annually per $10,000 invested.
iShares Russell Top 200 Value ETF
IWX's (IWX) 134 holdings are plucked from the Russell Top 200 Index – composed of the 200 largest companies in the Russell 3000 Index (.RUA) – with each considered to be undervalued compared with the rest of the market via certain metrics. While you might think a fund stuffed with value stocks would be heavy with beaten-down energy stocks, you'd be wrong – energy is just around 8% of the portfolio, with financials at 22% and health care a close second at nearly 20%. The biggest individual weights go to Berkshire Hathaway (BRK/B) and Johnson & Johnson (JNJ). The fund's 10-year average return is 8.54%, with an expense ratio of 0.2%.
Schwab U.S. Large-Cap Value ETF
The Schwab U.S. Large-Cap Value ETF (SCHV) is among the cheapest funds of the group with an expense ratio of 0.04%. The fund features a pretty wide set of holdings – at more than 400 – selected by metrics that include price-earnings and price-book ratios. SCHV also has a somewhat different composition from IWX. Health care is the leading sector, weighted at around 18%. This is followed by financials (16%) and consumer staples (14%). The fund has a 10-year average return of 9.04%.
Vanguard Value ETF
Naturally, a Vanguard fund would be another cheap option among large value funds. VTV (VTV) comes with an expense ratio of 0.04%, and it too follows an index that focuses on stocks with favorable readings in metrics such as P/E and P/B, as well as dividend-price and price-sales ratios. Health care is again the biggest weight, at about 23% of the fund. This is followed by financials (19%), consumer goods (13%) and industrials (10%). VTV's top three holdings are Berkshire, JNJ and Procter & Gamble (PG). The fund's 10-year average return is 9.54%.
Invesco FTSE RAFI US 1000 ETF
PRF (PRF) is a straightforward large-cap fund that invests in roughly 1,000 equities, focusing on "four fundamental measures of firm size: book value, cash flow, sales and dividends." This results in a massive fund whose holdings sport an average market cap of more than $160 billion. PRF is similar to other funds in the group in that financials (16%) and health care (14%) are among the heaviest sectors. But the fund is very balanced, with five other sectors all commanding more than 8% in weight. Top holdings include Apple (AAPL), Exxon Mobil and Microsoft (MSFT). The fund's 10-year average return is 9.18% and its expense ratio is 0.4%.
iShares S&P 500 Value ETF
The iShares S&P 500 Value ETF (IVE) invests in the most value-centric stocks in the S&P 500 (.SPX), which is actually a pretty hefty chunk of the index – IVE holds close to 400 stocks. This value ETF is pretty thick in financials, at 18%, and health care, at 22%, which is similar to other funds listed here. Its top holdings include Berkshire, UnitedHealth Group (UNH) and Verizon Communications (VZ). The fund's 10-year average return is 8.89%, with an expense ratio of 0.18%.
Vanguard S&P 500 Value ETF
The Vanguard S&P 500 Value ETF (VOOV) is pretty close in construction to IVE, which makes sense considering it's a value fund made up of S&P 500 stocks. Sector holdings are almost identical to IVE, and the funds share many of the same top 10 holdings – and the ones not in the top 10 appear soon after. Of note, however, is that Vanguard's offering is slightly cheaper, with an expense ratio of 0.1%. The fund is turning 10 years old in September, but it holds a five-year average return of 5.13%.
Vanguard Mega Cap Value ETF
MGV (MGV) is a collection of more than 150 mega-cap stocks with a median market cap of more than $100 billion, screened by the same value metrics as VTV. The fund seeks to track the performance of the CRSP U.S. Mega Cap Value Index. MGV is, without surprise, thick in financials – at about 20% of the fund – and led by 24% in health care. Top holdings include Berkshire, JNJ and Procter & Gamble, which should also sound familiar. One exciting thing to note about MGV, though, is its 26% gain last year. The fund's 10-year average return is 9.76%, with an expense ratio of 0.07%.
Vanguard Russell 1000 Value ETF
Vanguard's VONV (VONV) is another way to break apart the large value world, in this case by investing in value stocks across the Russell 1000. This results in about 765 stocks with a median market cap of around $50 billion – a bit smaller on average than many funds on this list. It has a very large weight in financials, at 21%, and boasts Berkshire, JNJ and JPMorgan Chase (JPM) as its top three holdings. This Vanguard fund is also reaching its 10th year since inception in September, so it holds a five-year average return of 3.78%. Its expense ratio is 0.08%.
iShares Core S&P US Value
IUSV (IUSV) has the distinction of being one of the most diverse funds on the list. The fund holds roughly 700 stocks that register as "value stocks," and its underlying index is the S&P 900 Value Index. By the merit of including so many stocks, it bleeds into mid-caps pretty heavily; all told, the fund's holdings average about $100 billion in market cap. However, IUSV doesn't have a single position at more than 3% of the portfolio – with the exception of Berkshire – so it remains reasonably diversified across value stocks both big and small. The fund's 10-year average return is 8.90%, with an expense ratio of 0.04%.
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