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Welcome to Episode #60 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Recently, Tracey has been getting some inquiries about how value investors can use ETFs to buy stocks, instead of just buying the individual shares.
With growth stocks still in favor, now is a good time for investors to look at their value options.
Why Buy ETFs?
1. ETFs allow for more diversification and can lower investing risk. Instead of just owning one community bank in Michigan or Wisconsin, you can own a basket of them through an ETF. And then, if something goes wrong at one of them, you’re at least a little insulated from the shock.
2. ETFs can also help investors control their emotions. It doesn’t remove emotions completely from the equation, but not too many investors get attached to, say, the S&P 500 ETF the same way they can to individual stocks.
3. ETFs can also be a good building block for a portfolio because if you do one that tracks a large market index like the S&P 500, you’re getting more overall market exposure.
How to Choose an ETF
There are some value ETFs that attempt to be classic value plays, with low P/Es, P/S, and P/B ratios. But, as we know, there aren’t that many stocks that qualify as classic value right now.
Therefore, many ETFs buy value stocks which also have a growth component.
If you want a classic value play, you may be interested in Guggenheim’s Pure Value ETFs. For those who want some growth stocks thrown in the mix, then the SPDR or Vanguard ETFs may be the right ones.
Know what you own. Don’t just buy an ETF because it says “value” in its name. Each one is different. You may be surprised at what the ETF actually holds.
Additionally, don’t forget to look at expense ratios as well. If you’re a long-term investor, paying 0.7% a year in expenses can really eat into returns.
5 ETFs for Value Investors
1. Guggenheim S&P 500 Pure Value ETF (RPV - Free Report) ) holds 107 stocks with a P/E of 15.1. Expense ratio is 0.35%. Tracey discusses what makes this one different from some of the other value ETFs.
2. SPDR S&P 600 Small Cap Value holds 440 stocks with a forward P/E of 18.6. Expense ratio is 0.15%. Investors will get a growth component with this ETF. Tracey explains why on the podcast.
3. Vanguard Small Cap Value ETF (VBR - Free Report) is the cheapest, with an expense ratio of just 0.07%, but it also holds the most stocks at 842 stocks. P/E is 16.2.
4. First Trust Large-Cap Value AlphaDEX Fund (FTA - Free Report) is the most expensive of these ETFS, with an expense ratio of 0.62%. It has a P/E of 15.1. It follows the NASDAQ’s AlphaDEX Large Cap Value Index which ranks stocks based on value factors. The index is reconstituted and rebalanced quarterly.
5. Powershares S&P 500 Value with Momentum Fund (SPVM - Free Report) holds 99 stocks and combines both value with stocks that have positive momentum. That’s a powerful combination but not in 2017. This ETF is up 4.5% year-to-date, which is underperforming the S&P 500, which is up about 12% for the year.
Be sure to investigate the holdings of each ETF you buy. The Powershares Value with Momentum Fund’s largest sector holding as of Sep 18, 2017 was financials with a whopping 49.3% of the ETF.
If you want to own the financials, that kind of concentration may be fine for you. But if you don’t, you had better be looking elsewhere in the world of ETFs for a fund that suits your investing needs.
What else should you know about these value ETFs?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of Vanguard’s VBR in her personal portfolio.]
Want more value investing insights from Tracey?
Value investors are a special breed of investor. They don’t follow the herd.
If that is your style of investing, be sure to check out Tracey’s weekly Value Investor service to receive more in-depth analysis on value companies and see which stocks she thinks are the best bargains now.
The Value Investor portfolio holds between 20 and 25 value stocks for the long haul.
Image: Bigstock
How to Use ETFs to Buy Value Stocks
Welcome to Episode #60 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Recently, Tracey has been getting some inquiries about how value investors can use ETFs to buy stocks, instead of just buying the individual shares.
With growth stocks still in favor, now is a good time for investors to look at their value options.
Why Buy ETFs?
1. ETFs allow for more diversification and can lower investing risk. Instead of just owning one community bank in Michigan or Wisconsin, you can own a basket of them through an ETF. And then, if something goes wrong at one of them, you’re at least a little insulated from the shock.
2. ETFs can also help investors control their emotions. It doesn’t remove emotions completely from the equation, but not too many investors get attached to, say, the S&P 500 ETF the same way they can to individual stocks.
3. ETFs can also be a good building block for a portfolio because if you do one that tracks a large market index like the S&P 500, you’re getting more overall market exposure.
How to Choose an ETF
There are some value ETFs that attempt to be classic value plays, with low P/Es, P/S, and P/B ratios. But, as we know, there aren’t that many stocks that qualify as classic value right now.
Therefore, many ETFs buy value stocks which also have a growth component.
If you want a classic value play, you may be interested in Guggenheim’s Pure Value ETFs. For those who want some growth stocks thrown in the mix, then the SPDR or Vanguard ETFs may be the right ones.
Know what you own. Don’t just buy an ETF because it says “value” in its name. Each one is different. You may be surprised at what the ETF actually holds.
Additionally, don’t forget to look at expense ratios as well. If you’re a long-term investor, paying 0.7% a year in expenses can really eat into returns.
5 ETFs for Value Investors
1. Guggenheim S&P 500 Pure Value ETF (RPV - Free Report) ) holds 107 stocks with a P/E of 15.1. Expense ratio is 0.35%. Tracey discusses what makes this one different from some of the other value ETFs.
2. SPDR S&P 600 Small Cap Value holds 440 stocks with a forward P/E of 18.6. Expense ratio is 0.15%. Investors will get a growth component with this ETF. Tracey explains why on the podcast.
3. Vanguard Small Cap Value ETF (VBR - Free Report) is the cheapest, with an expense ratio of just 0.07%, but it also holds the most stocks at 842 stocks. P/E is 16.2.
4. First Trust Large-Cap Value AlphaDEX Fund (FTA - Free Report) is the most expensive of these ETFS, with an expense ratio of 0.62%. It has a P/E of 15.1. It follows the NASDAQ’s AlphaDEX Large Cap Value Index which ranks stocks based on value factors. The index is reconstituted and rebalanced quarterly.
5. Powershares S&P 500 Value with Momentum Fund (SPVM - Free Report) holds 99 stocks and combines both value with stocks that have positive momentum. That’s a powerful combination but not in 2017. This ETF is up 4.5% year-to-date, which is underperforming the S&P 500, which is up about 12% for the year.
Be sure to investigate the holdings of each ETF you buy. The Powershares Value with Momentum Fund’s largest sector holding as of Sep 18, 2017 was financials with a whopping 49.3% of the ETF.
If you want to own the financials, that kind of concentration may be fine for you. But if you don’t, you had better be looking elsewhere in the world of ETFs for a fund that suits your investing needs.
What else should you know about these value ETFs?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of Vanguard’s VBR in her personal portfolio.]
Want more value investing insights from Tracey?
Value investors are a special breed of investor. They don’t follow the herd.
If that is your style of investing, be sure to check out Tracey’s weekly Value Investor service to receive more in-depth analysis on value companies and see which stocks she thinks are the best bargains now.
The Value Investor portfolio holds between 20 and 25 value stocks for the long haul.
Click here to learn more>>>