The value investing style gets a lot of mislabeling as an antiquated form of investment, but whether it really is or not in today’s market, there’s still a place for the tried-and-true value-oriented investor.
“There are many different investment styles,” wrote Steve Reitmeister in a Stock News article. “Everything from day trading to buy and hold investing. Or a focus on fundamental vs. technical attributes. And then you have the ideas of value vs. growth vs. income vs. momentum approaches.”
“I have explored them all,” he added. “And the one that makes the most sense to me is a focus on value. Meaning to find stocks that are trading at an ample discount to their fair value allowing an investor to enjoy outperformance as they rebound to their proper price. This is the approach favored by investing legends Benjamin Graham, and his famed mentee Warren Buffett.”
Nonetheless, it doesn’t mean that value is a miracle elixir to solve an investor’s portfolio woes. There are some baseline fundamentals that investors can apply when using value.
“However, value investing doesn’t mean the same thing to everyone,” wrote Reitmeister. “My twist is to avoid stocks with weak fundamentals like declining earnings. Too often they go from bad to worse. Instead, you want a thriving company that has sold off allowing you to pick it up from the discount bin for 20-40% below fair market value. A portfolio of stocks with that spread will enjoy a marked advantage over other portfolios.”
Value ETF Options
For ETF investors looking for value plays, one ETF play that’s worth a look involves sifting through the Nasdaq to find value via the Principal Contrarian Value Index ETF (PVAL). PVAL seeks to provide investment results that closely correspond, before expenses, to the performance of the Nasdaq U.S. Contrarian Value Index (the “index”).
Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index at the time of purchase. The index uses a quantitative model designed to identify equity securities in the Nasdaq US Large Mid Cap Index (the “parent index”) that appear to be undervalued by the market relative to their fundamental value.
Another option to consider is the American Century STOXX U.S. Quality Value ETF (VALQ). VALQ seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the iSTOXX® American Century USA Quality Value Index (the underlying index). Under normal market conditions, the fund invests at least 80% of its assets in the component securities of the underlying index. The underlying index is designed to select securities of large- and mid-capitalization companies that are undervalued or have a sustainable income.