3 Value ETFs For Factor Purists

Classifying stocks as either growth or value is one of the oldest and most studied fundamental investment pillars. This process traditionally involves the analysis of various balance sheet statistics to determine a company’s intrinsic net worth relative to its peers and historical benchmarks.

Being that “value” is such a sought-after characteristic, it’s no surprise that over 50 exchange-traded funds are dedicated to the pursuit. The largest of which include the iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV). 

Both funds offer a highly diverse pool of stocks culled from well-known indexes with extremely low fees.If there is a criticism to be made of these ETFs, it’s that they are possibly too diverse and constructed using overly simplistic methods. This may fail to resonate with investors who truly worship at the altar of fundamental analysis.

Value purists may ultimately scoff at the likes of VTV and IVE in favor of deeper analysis and a smaller pool of stocks with the capability to show off what this factor is all about. Fortunately, there are several ETFs that bring the true spirit of value investing back to its roots.

ValueShares U.S. Quantitative Value ETF (QVAL)

QVAL is the flagship fund of Alpha Architect, an independent ETF sponsor created by Wesley Gray PhD and Jack Vogel PhD.Both gentlemen have forgotten more about fundamental value characteristics than I will ever be able to remember. As such, they are a perfect team to construct a quantitatively driven portfolio of stocks by identifying attractive fundamental criteria.

QVAL is an index-based ETF with just 40 holdings that are roughly equal weighted in the portfolio structure. This allows for each stock to have a similar contribution to the total return of the fund rather than giving larger companies the lion’s share of the assets.

To be included in the QVAL portfolio, stocks must meet forensic accounting, valuation, and quality screens to ensure minimum requirements are met. Well-known holdings include: General Motors Corp (GM), Lear Corp (LEA), and Target Corp (TGT).

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Disclaimer: FMD Capital Management, its executives, and/or its clients may hold positions in the ETFs, mutual funds or any investment asset mentioned in this post. The commentary does not ...

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