Factor investing has come a long way from the nascent days in the mid-2000s when just a few ETFs were linked to the strategy.
Today, major ETF firms like Invesco, State Street Global Advisors and others offer a bevy of factor ETF choices.
ETFs linked to factors like value, low beta and momentum are investing strategies that provide clients with an opportunity to overweight areas of the market that are doing best while reducing exposure to the areas that aren’t.
With the current backdrop of high inflation, rising interest rates and compressing stock market valuations, let’s examine the factor ETFs that financial advisors should be watching.
Vanguard U.S. Value Factor ETF (VFVA)
With stock market valuations still compressing, market sentiment is favoring stocks that are cheaper versus the broader market. That’s helped lift the performance of value oriented funds like the Vanguard U.S. Value Factor ETF (VFVA).
Over the past year, VFVA has risen 2.84% which has beaten the SPDR S&P 500 ETF (SPY) by an impressive 11.33%.* Moreover, VFVA’s strategy of overweighting stocks with lower book values and forward price earnings ratios has outperformed nearly all other factor strategies, including the formerly invincible growth investing strategy.
Put another way, value is back and after many years of underperformance, it could be a good place to allocate.
AAM S&P 500 High Dividend Value ETF (SPDV)
The AAM S&P 500 High Dividend Value ETF (SPDV) puts a fresh spin on value investing by adding a meaningful dimension that’s becoming increasing important to clients: cash flow.
Unlike many dividend focused ETFs, which often become concentrated in just a few high yielding sectors, SPDV provides a more diversified strategy. The fund’s indexing method targets five stocks from each Global Industry Classification Standard (GICS) sector. This nifty design has the potential for a fuller range of sustainable dividend opportunities across many different industries.
SPDV distributes dividend income monthly and charges a modest expense ratio of 0.29%