Consider this approach to valuing stocks


Oith value stocks showing leadership this year, many investors are considering revisiting this beloved style of investing.

They also plan to do this with exchange-traded funds, dozens of which claim to be value offerings. With this extended menu in mind, it’s also worth noting that not all value ETFs are twins. In many cases, they are not even distant relatives.

Market players looking for a combination of profitability and value under one roof may want to assess the Avantis US Large Cap Value ETF (AVLV). AVLV, which debuted last September, is an actively managed ETF and seeks to beat the widely followed Russell 1000 Value Index.

According to FactSet, there are 30 different large-cap US ETFs, compared to 10 mid-cap options, 16 small-cap choices, and 20 total market. For example, Vanguard, iShares and State Street Global Advisors all offer an S&P 500 Value ETF based on the large cap index, which includes around 450 stocks. (Other ETFs cover international value stocks.)” reports Ari Weinberg for the Wall Street Journal.

Most of these funds are passively managed. Typically, this methodology serves investors well and has low fees. For its part, AVLV is by no means expensive. An expense ratio of 0.15%, or $15 per year on a $10,000 investment, is favorable relative to the universe of actively managed value mutual funds.

Additionally, adding active management to the value mix could be a worthwhile endeavor today, as some value stocks are not profitable companies and these companies have stretched balance sheets. The profitability of AVLV’s attention is significant at a time when investors demand a certain level of quality to accompany the rally in value.

Through its active style, AVLV breaks with certain traditions of passive value ETFs. Namely, the fund is significantly underweight the financials sector relative to its benchmark. Conversely, AVLV is significantly overweight in the Energy and Materials sectors – a trait that lends this conversation some inflation-fighting credibility.

AVLV holds 203 shares, and none of these components exceeded a weighting of 2.93%. This is a relevant trait because diversification, although sometimes overlooked, is an important characteristic of funds.

“But experts warn that the less diversified a value fund is, the more likely it is to fall into a value trap,” according to the Journal.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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