Growth-fueled investments, particularly within the technology sector have been fueling the extended bull run ahead of the pandemic sell-off in March. As the economy reopens, investors might be tempted to jump back into these equities given their 10-year performance, but they shouldn’t rely too heavily on what’s worked in the past.
“Growth stocks are now behaving like a carry trade, where a large group of investors believes owning only these stocks is a low risk, guaranteed way to make money,” wrote Jordan McCall of Russell Investments in an Advisor Perspectives article. “This leads to a false sense of security and a big, negative surprise when market leadership changes.”
One way to navigate the current market is to couple growth-fueled investments with those that tilt towards value. One way is via exchange-traded funds (ETFs) that emphasize value.
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.
One more value-titled fund to consider is the Invesco Dynamic Large Cap Value ETF (PWV). PWVseeks to track the investment results (before fees and expenses) of the Dynamic Large Cap Value IntellidexSM Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying intellidex. The underlying intellidex is composed of large-capitalization U.S. value stocks that the Intellidex Provider includes principally on the basis of their capital appreciation potential.
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