Growth stocks are getting the better of their value rivals this year. Still, that doesn’t mean exchange traded funds dedicated to value stocks are delivering losses. Rather, the opposite is true. It’s just that growth stocks are delivered better returns though the first eight months of the year.
However, some market observers contend that the “magnificent seven” and other drivers of this year’s growth rally are getting frothy on valuation. This indicates that it could be time for investors to revisit value stocks and ETFs. On that note, the WisdomTree U.S. Value Fund (WTV ) is a value ETF that could be worth examining.
Actively managed, WTV turned 16 years old in February, confirming it is battle-tested across a variety of market settings. Obviously, that’s in the past. Still, WTV’s more recent accomplishments are enviable as the WisdomTree ETF has soundly outperformed the Russell 1000 Value Index year-to-date. That’s old hat for WTV. The ETF has beaten the Russell 1000 Value gauge over the trailing one- three-, five-, and 10-year periods.
As an actively managed fund, WTV isn’t constrained by an index’s perception of value, which in many cases results in large weights to energy or financial services equities or both. In fact, neither of those sectors explain WTV’s impressive run this year.
“The three sectors with the biggest positive contribution to WTV’s outperformance were Industrials, Health Care and Consumer Discretionary,” noted Christopher Gannatti, WisdomTree global head of research. “It’s interesting, in that Industrials was all about stock selection (having a similar weight as the benchmark but stronger performance), Health Care was about being under-weight by nearly 8%, and Consumer Discretionary was about being over-weight by roughly 10.5%. Three sectors, three different ways relative attribution was added.”
WTV offers another advantage over standard value ETFs. While old guard funds in this category typically focus on inexpensive stocks as measured by traditional valuation metrics, WTV’s point of emphasis is shareholder yield , or the combination of buyback yield, dividend yield and a company’s debt-reducing efforts.
On a standalone basis, each is important. When combined, they become all the more potent as highlighted by WTV’s long-term track record. Focusing on buybacks, there’s long-term evidence confirming that companies that repurchase their shares instead of rampantly using equity as currency outperform profligate stock issuers.
“Companies with negative share issuance outperformed both the market generally as well as companies that were issuing shares. The margin was substantial on an average annual basis, and it was accomplished with lower average annual risk,” concluded Gannatti.
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