The evolution of Mr. Market’s discounting machine unfolds at a glacial pace these days. If you surveyed the ETF landscape a year ago, for instance (as The Capital Spectator did here), and compared it with the latest review (as presented below), you’ll find that a familiar cast of characters populate the lowest realms of discounted pricing: commodities and various slices of energy shares. Plus ça change, plus c’est la même chose!

The to and fro of value-priced assets isn’t always moving at a snail’s pace, but that’s been the prevailing trend in recent years and there’s a sign that the near term will offer anything different. But even in a relatively static world of ETF-based value inquiry, there are changes, subtle though they may be. With that in mind, let’s consider the (slightly) shifting landscape for a fresh look at the crowd’s collective wisdom on matters of low expectations in the extreme.

As always, we begin with a recap of the house rules for identifying funds that appear to be compelling candidates for relatively high expected returns. The metric of choice for “deep value” is the 5-year return, which is based on an idea outlined in a paper by AQR Capital Management’s Cliff Asness and two co-authors:  “Value and Momentum Everywhere,” published in a 2013 issue of the Journal of Finance. There are many value metrics and so no one should confuse the 5-year-performance benchmark as the definitive measure of bargain-priced assets. But as a starting point on the journey of identifying where the market’s outlook has fallen sharply, the 5-year change is a practical measure.

Perhaps the most useful attribute: 5-year performance can be applied over a broad set of assets, thereby dispensing a level playing field for evaluating value. Another plus: this metric is simple and therefore immune to estimation risk, which can complicate accounting-based value gauges, such as price-to-book and price-to-earnings measures. In sum, the 5-year return is a handy tool as a first approximation for identifying ETFs that may be deeply discounted by the crowd — and thereby offer relatively high expected returns via the value proposition for investing.

The standard caveat applies, of course, namely: there are no guarantees that value, no matter the definition, will lead to superior performance anytime soon, if ever. Recent history certainly shows that to be true.

The ranking below covers 135 exchange-traded products that run the gamut: US and foreign stocks, bonds, real estate, commodities, and currencies. You can find the full list here, sorted in ascending order by annualized 5-year return — 1260 trading days — through yesterday’s close, Aug. 21, 2019.

As usual in this exercise, the list is quite granular. In equities, for instance, the ETFs range from broad regional definitions (Asia, Latin America, etc,) to country funds, down to US sectors (energy, financials, for instance) and industries (e.g., oil & gas equipment & services). The only limitation is what’s available for US exchange-listed funds. Note, too, that just one representative ETF for each market niche is selected, albeit subjectively. For instance, there’s only one fund on the list for US real estate investment trusts. Otherwise, the search is broad and deep, or as broad and deep as allowed given the current availability of US-listed ETFs.

Let’s begin with the major asset classes for a big-picture profile. Echoing recent history, a broad definition of commodities continues to post the deepest shade of red for 5-year results. The iPath Bloomberg Commodity (DJP) – an exchange-trade note – has lost an annualized 10.0%. The second-deepest 5-year loss: VanEck Vectors JP Morgan EM Local Currency Bond (EMLC), which is off 1.6% a year since this point in 2014.

Let’s turn to the full list of funds, focusing on the deepest 20 losses for all 135 ETFs. The biggest slide at the moment is in the oil and gas industry via SPDR S&P Oil & Gas Equipment & Services (XES), which has tumbled an extraordinary 29.4% a year for past five years! Suffice to say, Mr. Market expects little, if any, performance from these stocks for the foreseeable future. The question is whether intrepid investors with a muscular contrarian streak beg to differ?

Finally, it’s interesting to consider how the other half stacks up, if only for perspective. The strongest performer on our list for trailing 5-year change: SPDR S&P Semiconductor (XSD), which boasts of a stellar 19.5% annualized total return, closely followed by the second-best gainer: SPDR S&P Health Care Equipment (XHE), which enjoys an annual 18.0% rise.

The future’s still unclear, but there’s no doubt about Mr. Market’s current preferences for predicting winners and losers.