Value investing has been a tried and tested strategy that has delivered impressive results over the long term. Renowned investors like Warren Buffett have utilized the value approach to achieve remarkable returns over time.
In recent years, value stocks have lagged behind growth stocks due to low interest rates boosting the valuations of fast-growing companies. From 2011 to 2020, large value funds consistently underperformed large growth funds by more than 5 percentage points each year, as reported by Morningstar. In 2020, the performance gap widened to a staggering 32.2 percent.
However, with the Federal Reserve maintaining high interest rates to combat inflation, some investors believe that value stocks are poised for a period of outperformance.
Value stocks outperformed in 2023, with the Russell 1000 Value Index declining approximately 7.5 percent compared to a more substantial 29 percent drop for the Russell 1000 Growth Index. However, this trend reversed in 2023, with the value index rising around 11.5 percent, while the growth index surged by about 42.7 percent.
Here are some of the top value ETFs that you may consider adding to your portfolio. (Data as of July 30, 2024.)
Top value ETFs
Vanguard Value ETF (VTV)
The Vanguard Value ETF aims to mirror the performance of the CRSP U.S. Large Cap Value Index, which tracks the returns of large-cap value stocks. The fund holds a portfolio of roughly 340 different stocks.
- 5-year returns (annualized): 11.0 percent
- Expense ratio: 0.04 percent
- Assets under management: $121.3 billion
- Top holdings: Berkshire Hathaway (BRK.B), Broadcom (AVGO), JPMorgan Chase (JPM), and Exxon Mobil (XOM)
- Dividend yield: 2.5 percent
iShares Russell 1000 Value ETF (IWD)
The iShares Russell 1000 Value ETF seeks to replicate the performance of the Russell 1000 Value Index, which comprises large- and mid-cap U.S. stocks with value characteristics. The fund provides exposure to companies considered undervalued relative to their peers.
- 5-year returns (annualized): 9.5 percent
- Expense ratio: 0.19 percent
- Assets under management: $58.3 billion
- Top holdings: Berkshire Hathaway (BRK.B), Exxon Mobil (XOM), JPMorgan Chase (JPM), and UnitedHealth Group (UNH)
- Dividend yield: 2.0 percent
Vanguard Small-Cap Value ETF (VBR)
The Vanguard Small-Cap Value ETF seeks to mimic the performance of the CRSP U.S. Small Cap Value Index, which tracks the returns of small-cap value stocks. The fund holds a diversified portfolio of over 800 stocks with 5 percent of its assets allocated to the top 10 holdings.
- 5-year returns (annualized): 10.6 percent
- Expense ratio: 0.07 percent
- Assets under management: $29.9 billion
- Top holdings: Carlisle Companies (CSL), Booz Allen Hamilton (BAH), Builders FirstSource (BLDR), and First Citizens BancShares Class A (FCNCA)
- Dividend yield: 2.2 percent
Vanguard Mid-Cap Value ETF (VOE)
The Vanguard Mid-Cap Value ETF aims to replicate the performance of the CRSP U.S. Mid Cap Value Index, which tracks the returns of mid-cap value stocks. The fund holds approximately 200 stocks, with 12 percent of the fund invested in the top 10 holdings.
- 5-year returns (annualized): 9.5 percent
- Expense ratio: 0.07 percent
- Assets under management: $16.9 billion
- Top holdings: PACCAR (PCAR), Arthur J. Gallagher & Co (AJG), Carrier Global (CARR), and Digital Realty Trust (DLR)
- Dividend yield: 2.3 percent
Fidelity High Dividend ETF (FDVV)
The Fidelity High Dividend ETF invests in stocks of large- and mid-cap companies expected to pay and increase dividends in the future. The fund holds a portfolio of around 100 stocks, with 30 percent of its assets allocated to the top 10 holdings.
- 5-year returns (annualized): 13.5 percent
- Expense ratio: 0.15 percent
- Assets under management: $3.1 billion
- Top holdings: Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), and Exxon Mobil (XOM)
- Dividend yield: 3.0 percent
SPDR Russell 1000 Yield Focus ETF (ONEY)
The SPDR Russell 1000 Yield Focus ETF aims to deliver returns that closely track the performance of the Russell 1000 Yield Focused Factor Index. The fund focuses on collecting above-average dividend payments to boost total returns.
- 5-year returns (annualized): 12.3 percent
- Expense ratio: 0.20 percent
- Assets under management: $833.3 million
- Top holdings: Bristol-Myers Squibb (BMY), Altria Group (MO), Diamondback Energy (FANG), and Ford Motor Co. (F)
- Dividend yield: 3.2 percent
What is value investing?
Value investing can have different interpretations, but it generally involves obtaining more value than the price paid for an investment. While growth is essential for a company’s value to shareholders, growing companies can also offer value depending on their purchase price.
The investment industry categorizes funds into various segments like value and growth funds, necessitating a quantitative definition of value and growth. Value funds typically hold companies with lower price-to-book and price-to-earnings ratios compared to a broad index. They also tend to have higher dividend yields and lower expected earnings growth in the future.
Bottom line
Investing in value ETFs provides a convenient way to invest in undervalued stocks without the extensive research required for individual stock selection. By owning a diversified portfolio of these stocks through an ETF, investors can benefit from owning stocks across different industries that trade at below-average multiples of earnings and assets.
Editorial Disclaimer: All investors are encouraged to conduct independent research into investment strategies before making investment decisions. Additionally, past performance of investment products is not indicative of future price appreciation.