With artificial intelligence (AI)-linked equities continuing to captivate investors’ hearts and minds, it’s not surprising market participants are leaning into growth stocks and the related ETFs. Believe it or not, that could also be indicative of opportunity with value stocks. Think of it this way: Many investors are sleeping on value at a time when the style is proving durable. The actively managed American Century Focused Large Cap Value ETF (FLV ) is proof of that trend, as the ETF is delivering solid returns, proving its merit as a complement in growth-heavy portfolios.
Read more: Lean on Active Management for Small-Cap Value Success
For value investors, the $343.9 million FLV offers multiple advantages. First, as an actively managed ETF, FLV can leverage that management style to more effectively identify stocks with credible value traits while avoiding value traps. Second, FLV features a high-conviction roster of just 49 stocks. By comparison, passive ETFs tracking the Russell 1000 Value Index — the gauge FLV attempts to beat — hold more than 860 stocks. That breadth increases the odds of some undesirable names appearing in the index.
More FLV Perks
In addition to its ability to potentially separate the value wheat from the chaff, FLV is appealing at a time when some investors need to diversify their equity portfolios. Said another way, this ETF makes a lot of sense for investors that may have feasted too heavily on growth fare.
“In the comparison of value stocks vs. growth stocks, value stocks are generally associated with lower valuation metrics, steadier cash flows and more frequent dividend payouts, while growth stocks are usually priced for stronger future expansion,” noted Saxo. “This means value stocks may suit investors looking for stability and income, whereas growth stocks tend to carry higher expectations and greater sensitivity to sentiment.”
Another perk offered by active management with value stocks: the possibility that human managers better identify credibly undervalued stocks. That speaks to the advantages of FLV’s small-by-comparison lineup; it could signal more opportunity for rerating.
That’s the name of the game with value investing. Buy when a temporarily undervalued stocked, potentially shortening the odds markets will get around to agreeing with the undervalue thesis, thus pushing the stock higher in the future. Stock-picking to that effect is tricky, underscoring the utility of an ETF like FLV.
“Value stocks provide the opportunity to invest in well-established companies that are temporarily undervalued. Over time, these stocks tend to recover as the market recognises their true worth, offering long-term capital appreciation,” added Saxo.
For more news, information, and analysis, visit the Core Strategies Content Hub.
