As the artificial intelligence hype and tech-led growth stock bull run begin to wane, investors are seeking out more stable and undervalued investment opportunities. Value ETFs, which focus on stocks that are trading below their intrinsic value, may offer a compelling alternative.
These exchange-traded funds often target companies with strong fundamentals, solid financial health, and attractive valuations, making them a potentially resilient choice in a changing market landscape.
Learn how these ETFs work within a value investing strategy, how to choose the best value funds for your portfolio, and the pros and cons of investing in them.
What Is a Value ETF?
A value ETF is a type of exchange-traded fund that invests in stocks or other securities that are considered undervalued or have a low price relative to their intrinsic value. Value ETFs typically focus on companies that have a strong financial position, stable earnings and a history of paying dividends.
The idea behind a value-based investment strategy is that the market sometimes undervalues stocks, and these undervalued stocks may provide more stable returns compared to growth stocks , which generally trade at a premium. Value investors use various metrics, such as price-to-earnings ratio (P/E ratio), price-to-book ratio (P/B ratio) and dividend yield to identify stocks that are undervalued.
As of Sept. 5, 2024, there were 127 value ETFs traded on U.S. markets with total assets under management of $522 billion. The average expense ratio for the category is 0.37%. The largest value ETF, as measured by assets under management, is the Vanguard Value ETF (VTV) , with $124.3 billion in assets under management (AUM).
How Do Value ETFs Work?
Most value ETFs attempt to passively track an index of stocks or other securities that are considered undervalued or have a low price relative to their intrinsic value. Securities within the index may be defined by various stock valuation metrics, such as P/E ratio, P/B ratio and dividend yield to identify stocks that are undervalued.
While most value funds are passively managed, some value ETS are actively managed. Rather than attempt to mimic the returns of a benchmark like the Russell 1000 Index, an actively managed value ETF may attempt to outperform the benchmark.
Many value ETFs pay dividends , which may be paid quarterly, or at some other frequency, depending on the ETF. From the investor’s perspective, dividends may be received as income, or the investor may choose to have the dividends automatically buy more shares of the dividend ETF.
What Are the Types of Value ETFs?
There are several types of value ETFs that investors can consider, including broad-based value ETFs, sector-specific value ETFs, dividend ETFs and factor-based value ETFs:
10 Top Value ETFs by AUM
|
Ticker |
Fund |
AUM |
Expense Ratio |
1-Yr Return |
|
VTV |
Vanguard Value ETF |
$124.3B |
0.04% |
22.03% |
|
IWD |
iShares Russell 1000 Value ETF |
$58.6B |
0.19% |
19.17% |
|
IVE |
iShares S&P 500 Value ETF |
$34.6B |
0.18% |
22.01% |
|
VBR |
Vanguard Small-Cap Value ETF |
$22.9B |
0.07% |
18.28% |
|
SPYV |
SPDR Portfolio S&P 500 Value ETF |
$23.3B |
0.04% |
22.10% |
|
IUSV |
iShares Core S&P U.S. Value ETF |
$18.9B |
0.04% |
21.75% |
|
VOE |
Vanguard Mid-Cap Value ETF |
$17.2B |
0.07% |
21.23% |
|
EFV |
iShares MSCI EAFE Value ETF |
$15.2B |
0.34% |
20.29% |
|
IWS |
iShares Russell Mid-Cap Value ETF |
$13.2B |
0.23% |
18.52% |
|
AVUV |
Avantis U.S. Small Cap Value ETF |
$12.8B |
0.25% |
16.21% |
Value ETF list data as of Sept. 5, 2024.
Pros and Cons of Investing in Value ETFs
Investing in value ETFs has both advantages and disadvantages. For example, value ETFs can provide stable returns and a source of income through dividends. However, value ETFs still carry market risk and may also underperform growth stocks in some economic conditions.
Pros
Cons
What to Look for in a Value ETF
Many of the selection criteria to look for in a value ETF, such low expense ratios, high assets under management and strong performance history, are the same for choosing the best ETFs in general. However, investors may also consider factors unique to value ETFs, such as the fund’s yield.
Investors should consider several factors when choosing a value ETF, including:
Bottom Line on Value ETFs
Value ETFs can be a good investment choice for investors needing income from dividends or those that are attracted to greater price stability compared to growth ETFs. Like all investments, there are risks involved, and the value of a value ETF can fluctuate based on market conditions and other factors. It's important for investors to carefully consider their investment objectives and risk tolerance before investing in any ETF.
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