To add value or not to add value—that seems to be the question moving forward as more economies look to try and rebound from the coronavirus pandemic. While value investing may have fallen to the wayside in favor of the more tech sector-fueled growth factor, there are reasons to not count out value just yet.
“When looking at value you do need to distinguish between sectors such as financials which admittedly make probably the largest value segment and everything else,” said Ben Yearsley, investment director at Fairview Investments, per a Financial Times Adviser article. “Financials are going to find it very hard making headway over the next decade, in my view, as interest rates are simply not going up. Even in the face of higher inflation, I can’t see central banks pulling the trigger in any meaningful way.”
“Having said that, I do think some of these stocks look astonishingly cheap today and could easily have a short term rebound; it’s just a longer-term bull market for value seems harder to see occurring,” Yearsley added. “In the UK we have a different problem in that value was obviously synonymous with dividends and many of those have been cut or deferred. So that probably rules out a rebound for 2020 as companies won’t be rushing back to the dividend register this year.”
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.