October Marks Best Month For Value ETFs Since 1978: Top Funds

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The Russell 1000 Value index surged 10.1% in October, beating its growth counterparts by 4.3 percentage points. The value outperformance spread is in the 96th percentile of outcomes since 1978, according to Bank of America, as quoted on CNBC. The iShares Russell 1000 Value ETF (IWD) hauled in $444 million inflows last month during the broader market rally.

Anemic growth in developed economies, the QE scenario and muted bond yields have kept value investing subdued in the past decade and boosted growth stocks. But the scenario is changing now. Since the growth sector relies on easy borrowing for superior growth and its value depends heavily on future earnings, a rise in long-term yields cuts the present value of companies’ future earnings.

And this is where value investing rises. Value stocks perform better in a rising rate environment which we have been witnessing currently. Notably, the Fed has been hiking rates this year fast to tame sky-high inflation. Moreover, during the peak of the pandemic, value stocks were hit hard. With economic reopening gaining traction, now is the time for them to flourish on beaten-down valuation.

As rates have been rising fast, recessionary fears have been doing rounds and causing volatility in the stock market. Value stocks also have the potential to reduce overall volatility compared to its growth and blend counterparts. In fact, these stocks outperform the growth ones when considered on a long-term investment horizon.

Value stocks have a low price-to-book ratio (P/B)— a measure of market cap relative to tangible assets, per a Wall Street Journal article. The lower the price-to-book ratio, the higher the value. This makes them a gem-like bet amid economic uncertainties. Plus, most value ETFs are financial sector-heavy and perform better in a rising rate environment. The benchmark U.S. treasury yield started October with 3.67% while it ended with 4.10%.

“We continue to prefer value over growth, with growth in the middle of a perfect storm of higher rates + weakening fundamentals,” Savita Subramanian, BofA Securities head of U.S. equity and quantitative strategy, said in a note, as quoted on CNBC. “Value factors have also historically benefitted from year-end seasonality.” Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management also prefers U.S. large-cap value stocks, per CNBC.

Against this backdrop, below we highlight a few top-performing large-cap value ETFs of the past month.


ETFs in Focus

Invesco S&P 500 Enhanced Value ETF (SPVU) – Zacks Rank #1 (Strong Buy)

One-Month Return: 13.02%

Expense Ratio: 0.13%

Yield: 2.65%

Cambria Shareholder Yield ETF (SYLD)

One-Month Return: 12.23%

Expense Ratio: 0.59%

Yield: 2.85%

Alpha Architect U.S. Quantitative Value ETF (QVAL)

One-Month Return: 12.16%

Expense Ratio: 0.49%

Yield: 1.93%

SPDR Dow Jones Industrial Average ETF (DIA) – Zacks Rank #2 (Buy)

One-Month Return: 11.92%

Expense Ratio: 0.16%

Yield: 1.95%

Invesco S&P 500 Value With Momentum ETF (SPVM) – Zacks Rank #2

One-Month Return: 11.80%

Expense Ratio: 0.39%

Yield: 1.99%

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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