5 Ultra-Cheap Value ETFs To Beat The Choppy Market

While the major bourses are scaling multiple highs thanks to a pickup in global economic activity and robust corporate earnings, bouts of volatility and uncertainty have at times crossed the path, threating the bull run. This is especially true given the rounds of weak economic data, re-emergence of political turmoil and the recent technology sell-off.


Fundamentals Getting Weak

The latest round of economic data has disappointed investors with weaker-than-expected data for job growth, inflation, retail, housing, and consumer sentiment. While the unemployment rate dropped to 4.3% (the lowest level since 2001), the economy added 138,000 jobs in May, falling short of analysts’ expectation. Both March and April job gains were also revised down by 66,000.

The Consumer Price Index dipped 0.1% in May after rising 0.2% in April, taking the year-over-year inflation rate to 1.9%. This is well below the five-year high of 2.7% just four months ago. Retail sales also saw the biggest drop in 16 months, falling 0.3% last month while housing starts fell 5.5% to an annual rate of 1.09 million, the lowest level in eight months. Meanwhile, the latest consumer sentiment survey signals a halt in consumer optimism since the presidential election. Notably, the preliminary University of Michigan's Consumer Sentiment Index dropped to 94.5 in June, well below economists' expectations of 97.1.  

All these indicate that confidence in the economy is continuing to fade after a slowdown in the first quarter. Further, markets are speculating that the Trump administration will continue to face hurdles in getting its tax and healthcare reforms passed by the Congress. Political uncertainty in Europe following the hung parliament in UK, growing tensions in the Gulf States, and the ongoing probe of Trump over Russia interference have added to the woes.

If these weren’t enough, the recent technology rout has made investors jittery and triggered the appeal for value investing. Here, one can bet on 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.

Given this, investors may want to consider a nice value play in the current volatile market environment. While looking at individual companies is certainly an option, a focus on cheap value ETFs could be a less risky way to tap into the same broad trends.

Below we have selected five value ETFs that provide exposure to the broad stock market instead of a particular sector. All these funds have a Zacks Rank #3 (Hold) with a lower expense ratio of under 10%, making them superior relative to other choices in the value space.

Schwab U.S. Large-Cap Value ETF (SCHV - Free Report)

This fund tracks the Dow Jones U.S. Large Cap Total Stock Market Index, holding 351 stocks in its basket. None of the securities accounts for more than 4.6% of total assets. Additionally, the product is well spread out across sectors with financials, information technology, consumer staples, and healthcare accounting for double-digit exposure each. SCHV has amassed assets worth $3.5 billion and trades in volume of more than 327,000 shares a day on average. It charges an expense ratio of 0.04% and is up 6.3% so far this year.

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