Broadly speaking, value stocks crushed their growth counterparts last year. The average growth mutual fund gained just 1.7 percent last year, severely lagging the average gain of 14.6 percent for value mutual funds, according to CFRA Research.
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The iShares Edge MSCI USA Value Factor ETF (iShares Trust (VLUE)), which turns 4 in April, offers something of a unique spin relative to traditional, prosaic value exchange-traded funds. VLUE follows the MSCI USA Enhanced Value Index, which measures the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations, according to iShares.
VLUE Methodology And Strategy
At the core of VLUE's methodology is capturing stocks that look attractively valued compared to their sectors. The apples-to-apples comparisons make sense and have the potential to work in VLUE's favor.
VLUE departs from standard value ETFs at the sector level. Whereas most value ETFs feature energy and financial services stocks, in either order, as their top two sector weights, VLUE's largest sector allocation is 21.2 percent to technology. That speaks to technology's increasing credibility as a legitimate value sector.
In addition to being one of the biggest contributors to the buyback boom of recent years, technology stocks have also been major drivers of the S&P 500's dividend growth since the financial crisis. In fact, technology is now one of the benchmark U.S. equity index's biggest dividend-paying groups in dollar terms.
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Since its inception, VLUE has actually impressively outperformed the aforementioned Russell 1000 Value index and the ETF represented by IWD, which also happens to be the largest U.S. Value Equity fund offered in the current U.S. product landscape. Granted, the live trading performance history is limited, but the sheer asset levels that are currently present and invested in funds like IWD, VTV and VIG may provide some foresight into potential future growth of a fund like VLUE, said Street One Financial Vice Paul Weisbruch in a note out Wednesday.
The IWD being referred to there is the iShares Russell 1000 Value Index (ETF) (IWD), an older, more typical approach to value ETFs than VLUE.
VLUE does allocate over 14 percent of its weight to financial services stocks, but its energy weight is light relative to other value ETFs at just under 7.3 percent. IWD devotes almost 40 percent of its lineup to energy and financials while technology stocks are just 9.5 percent of that ETF's weight.
Interestingly, VLUE has not been significantly more volatile than IWD. The former's three-standard deviation of 12.2 percent is not much higher than the nearly 11 percent found on IWD.
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