Is the market actually too expensive? Earlier this month, VettaFi Economic and Market Research Analyst Jen Nash explored that question. Looking at a few important indicators, she found a very expensive market relative to historical measures. Many investors would likely concur, weighing those high valuations against an overall positive market outlook. Those looking to add equity exposure may want to focus on fundamentals via an active value ETF.
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Why look to value stocks? Firms that fit a value screen cost less than analysts — often screening for fundamentals — believe they should. In an expensive landscape, finding those undervalued names can present some appealing opportunities. Such an approach is, of course, popular, but finding the right route can help a portfolio outperform.
An active value ETF, specifically, may appeal, especially versus more staid passive funds. Passive management limits an ETF’s ability to take advantage of important trends like rate cuts or deregulation. What’s more, an active value ETF can lean on a firm’s proprietary fundamental research and its managers’ expertise to identify the strongest value opportunities out there.
The T. Rowe Price Value ETF (TVAL ) provides an option therein. The strategy charges a fee of only 33 basis points for its approach. It actively invests in U.S. large-cap firms based on fundamental research and bottom-up stock selection. The active ETF looks for stocks underrated by the market, assessing metrics like undervalued assets, dividend yield, and restructuring opportunities. The active value ETF also looks at book value, sales, and cash flow.
Together, the strategy has an annualized average return of 15.8% since inception, which outperforms its benchmark’s return by more than 1% after fees, per T. Rowe Price data as of December 31. All told, its focus on fundamentals and adaptability could make it a solid option for investors in an expensive market.
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