With widespread volatility and uncertainty, Wall Street is struggling to find a solid footing this year. The worries include inflationary pressure, a faster-than-expected rates hike, political instability in Washington, trade tensions, technology sector turmoil and rising yields.
Additionally, rounds of weak economic data related to manufacturing, consumer spending and GDP growth took a toll on the market. Investors have turned more cautious, given the old belief that seasonality plays a huge role in pushing stocks down during the summer months (May to October).
However, consumers were more confident in April with consumer confidence index rebounding to an 18-year high, indicating solid economic growth prospects.
Massive tax cuts and strong corporate earnings are the two major catalysts for stocks. In particular, new tax legislation will lead to an economic surge, boosting job growth in manufacturing and other sectors, increasing inflation and interest rates. Additionally, it would lead to higher earnings, increased buyback activities and fat dividends.
Meanwhile, Q1 earnings for the S&P 500 index are expected to be the strongest in seven years with growth of 22.6% from the same period last year on 8.4% higher revenues. This is much higher than 13.4% earnings growth recorded in Q4.
Investors seeking to remain invested in the equity world could consider value investing. The strategy includes stocks with strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market.
Why Value Investing?
Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows the potential for capital appreciation when the stock finally reflects its true market price.
As a result, value stocks have the potential to deliver higher returns and exhibit lower volatility compared with growth and blend counterparts. In fact, these stocks outperform the growth ones across all asset classes when considered on a long-term investment horizon and are less susceptible to trending markets.
While looking at individual companies is certainly an option, a focus on ETFs in the space could be a less risky way to tap into the same broad trends. These funds are popular and have a Zacks ETF Rank #2 (Buy).
Large Cap Value ETFs to Buy in a Shaky Market: Vanguard Value ETF (VTV)
The Vanguard Value ETF (NYSEARCA:VTV) seeks to track the CRSP US Large Cap Value Index, which measures the performance of the largest U.S. value stocks. With AUM of $36.1 billion and an expense ratio of 0.05%, VTV trades in a solid volume of around 1.6 million shares per day on an average.
The product holds 337 stocks, which are well spread across each component as none of these holds more than 5.7% share.
Here again, financials takes the top spot with one-fourth share while technology, healthcare and industrials round off to the next three spots with a double-digit allocation each.
Large Cap Value ETFs to Buy in a Shaky Market: Schwab U.S. Large-Cap Value ETF (SCHV)
The Schwab U.S. Large-Cap Value ETF (NYSEARCA:SCHV) tracks the Dow Jones U.S. Large Cap Total Stock Market Index, holding 357 stocks in its basket. None of the securities accounts for more than 5.8% of the total assets.
Additionally, the product is well spread out across sectors with financials, information technology, healthcare and consumer staples accounting for double-digit exposure each.
SCHV has amassed assets worth $4.1 billion and trades in volumes of around 320,000 shares a day on average. It charges an expense ratio of 0.04%.
Large Cap Value ETFs to Buy in a Shaky Market: Schwab Fundamental U.S. Large Company Index ETF (FNDX)
The Schwab Fundamental U.S. Large Company Index ETF (NYSEARCA:FNDX) follows the Russell RAFI US Large Company Index and holds 665 stocks with each accounting for less than 3.8% share.
Information technology, financials, energy and consumer discretionary are the top four sectors.
The ETF has AUM of $4.1 billion and trades in an average daily volume of 352,000 shares. It charges 25 bps in annual fees.
Large Cap Value ETFs to Buy in a Shaky Market: Vanguard Mega Cap 300 Value Index Fund (MGV)
The Vanguard Mega Cap 300 Value Index Fund (NYSEARCA:MGV) tracks the CRSP US Mega Cap Value Index, holding 156 stocks in its basket.
It is skewed toward the top firm – Microsoft Corporation (NASDAQ:MSFT) – at 6.8% while other firms do not account for more than 3.7% of the assets. With AUM of $1.9 billion, the ETF is also tilted toward financials at 25.3% while healthcare, technology and industrial round off the top four.
Expense ratio is 0.07% while average daily volume is moderate at 70,000 shares.
Large Cap Value ETFs to Buy in a Shaky Market: PowerShares Dynamic Large Cap Value Portfolio (PWV)
The PowerShares Dynamic Large Cap Value Portfolio (NYSEARCA:PWV) tracks the Dynamic Large Cap Value Intellidex Index, which seeks to provide capital appreciation while maintaining value exposure.
The index applies a 10-factor style isolation process and then evaluates stocks on price momentum, earnings momentum, quality and management action. This approach results in a basket of 50 securities, each holding less than 4.05% of the total assets.
Financials, consumer staples, information technology and healthcare are the top four sectors. The fund has amassed $1.4 billion in its asset base and sees good volume of 117,000 shares a day on an average. It charges 56 bps in fees per year.
Large Cap Value ETFs to Buy in a Shaky Market: First Trust Large Cap Value AlphaDEX Fund (FTA)
The First Trust Large Cap Value AlphaDEX Fund (NASDAQ:FTA) follows the NASDAQ AlphaDEX Large Cap Value Index, holding 188 stocks in its basket. None of the securities holds more than 1.20% share.
Financials dominates the portfolio with 22.6% of assets while consumer discretionary, utilities and energy round off the next three spots with a double-digit allocation each.
The fund has accumulated $1 billion in its asset base and charges 62 bps in annual fees. It trades in average daily volume of 76,000 shares a day on an average.
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