Considering an active value ETF? With so much discourse surrounding markets, the Fed, and the prospect of a recession right now, investors may be wondering if value makes sense for them, or if it’s still a good time to jump on the value train. According to research from American Century Investments, there are some notable factors in play right now with an active value ETF like the is poised to benefit.
One of those factors? The tendency for value stocks to benefit from monetary policy tightening – a phenomenon that had become much rarer since the Great Recession. The intervening years saw growth stocks broadly outperform value, spiking during the global pandemic, but when central banks end accommodative monetary policy programs as in the early 1980s or in the late Aughts, value’s dividend yields have picked up the slack for dropping equities returns.
Some investors might ask whether there’s still time to get into value with the Fed having already done so much tightening, but given the Fed’s signals, some market watchers are now anticipating a terminal rate as high as 5%. As such, recent returns for value have been good: the small value category on YCharts has returned 2.7% over one month compared to 1.5% for small growth, for example, with small value ETFs adding $1.5 billion in that time compared to $815 million for small growth ETFs.
AVUV, from American Century brand Avantis Investors, charges just 25 basis points for its active management, which seeks U.S. small-cap value stocks that the manager finds to be highly profitable. The portfolio is crafted using fundamental screens, with the management team looking to offer the benefits of indexing like diversification, low turnover, and exposure transparency but with the added benefit of active decision-making.
The active value ETF has outperformed its Factset Segment Average over the last month and the last three months, returning 3.7% and 13% respectively. It’s also added $125 million in net inflows over the last five days.
Investors would be right to be thrown off by all the uncertainty looming in 2023, but value strategies may be one area that can do well despite open questions about recession or rising rates. For investors looking for an active value opportunity, a strategy like AVUV may be one to consider.
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