Let’s face it: Justified or not, stocks are expensive right now. Many key market-leading firms are asking investors to pay a premium for equity exposure, particularly the AI-hyperscalers and megacap tech names. For those who want to invest in companies that may offer much better value, now may be the time, with active value ETFs offering some intriguing opportunities.
See more: 3 Ways Active ETFs Can Step up as Market Volatility Grows
Value investing has had a rough go in recent years, as growth opportunities have continued to overcome choppy markets. That has led to the current market scenario in which just a handful of expensive megacap tech names dominate. That does not mean that value investing opportunities don’t have a role to play.
Value Investing as Market Nears Record Valuations
Right now, the case for value investing focuses squarely on a U.S. stock market that is trading at historically expensive levels. While those artificial intelligence stocks may or may not merit their valuations, investors can look to value strategies to reduce reliance on those firms and potentially unearth some exciting opportunities — with the right approach.
Enter active value ETFs. By leaning on fundamental research, often engaging in bottom-up portfolio construction, active value ETFs can find value investment opportunities. Such strategies often emphasize metrics like cash flow or shares out standing, as well as managers’ own expertise and experience.
Should, for example, market leadership broaden, having an early advantage in value-style companies could get portfolios off to a strong start in the new year. Value investing ETFs like the T. Rowe Price Value ETF (TVAL ) can help play that role.
TVAL charges a 33 basis point fee for its approach. The strategy has returned 11.3% YTD, beating its ETF Database Category average in that time. The fund actively invests in large-cap stocks with potential for price appreciation.
What’s more, active has a specific role to play compared to passive value funds. Passive value funds must track specific indexes with tight rules, which may limit their ability to get the most out of market volatility. Active value ETFs, by contrast, can take advantage of uncertainty with their deep, research driven moves.
As market uncertainty continues to ebb and flow, investors may want to diversify outside of their more expensive holdings. With active adaptability and ETF tax efficiency, active value ETFs could provide strong options to consider.
For more news, information, and analysis, visit our Active ETF Content Hub.
