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5 of the best value ETFs of 2021
These undervalued funds offer broad exposure, but growth may be gradual.
Thanks to exchange-traded funds, it’s easier than ever to diversify with value stocks. These five ETFs top our list for offering low-risk, competitively priced options for investors seeking broad exposure to the market.
Value exchange-traded funds (ETFs) are funds composed of value stocks –– stocks that trade below what its performance suggests. In other words, stocks that are undervalued.
Value stocks stand out for their high dividend yields, low price-to-book (P/B) ratio and low price-to-earnings (P/E) ratio. And value ETFs seek to capitalize on these undervalued assets by offering broad exposure to a variety of value stocks.
The major appeal of value-oriented ETFs is that the homework has been done for you: you don’t need to sift through company fundamentals and performance history to identify value stock opportunities. Plus, by their very nature, ETFs offer broad market diversification through one or two simple investments.
The last decade belonged to growth-oriented stocks, but the stability of value investing has been difficult to ignore. In early 2021, we’ve seen value stocks start to gain momentum, and the record-setting market has inflated growth stock prices to significant premiums.
With that in mind, here are 5 great value ETFs to consider.
1. Vanguard Value Index Fund ETF Shares (VTV)
- Ticker: VTV
- 1-year return: 51.43%
- Assets under management: $105 billion
- Dividend yield: 2.82%
- Expense fee: 0.03%
This value ETF is a simple, straightforward approach to gaining investment exposure to the big names in US large-cap value. Top holdings include stocks like JPMorgan (JPM), Warren Buffett’s Berkshire Hathaway (BRK.B), Johnson & Johnson (JNJ) and Walt Disney (DIS). The fund gains access to these large-cap names by following the CRSP US Large Cap Value Index.
Over the last decade, this fund has delivered competitive average market returns of 11.64% annually.
2. Vanguard S&P Mid-Cap 400 value Index Fund ETF Shares
- Ticker: IVOV
- 1-year return: 89.57%
- Assets under management: $768.1 million
- Dividend yield: 2%
- Management fee: 0.14%
While this isn’t an ETF you’d typically encounter in a value discussion, I believe it has a lot to offer. This fund is based around mid-cap stocks, and as its name implies, its benchmark is the S&P Mid-Cap 400 Value Index. Small- and mid-cap stocks offer potential for bigger returns thanks to their growth potential. It’s a particularly nice place to look for value, as you can find companies with room to run without paying big premiums.
This is considered more of a high-risk fund because of the smaller companies it invests in. The trade-off is the potential for higher returns. This ETF is especially appealing given the high premiums commanded for popular growth stocks. It forces investors to look other places to find deals, and these mid-cap stocks fit the bill. The result is evidenced in the fund’s gargantuan run of nearly 90% over the past 12 months.
3. Fidelity Value Factor ETF
- Ticker: FVAL
- 1-year return: 61.89%
- Assets under management: $331 million
- Dividend yield: 1.77%
- Management fee: 0.29%
Founded in 2016, the Fidelity Value Factor ETF has delivered an average return of 15.58% per year. Looking to follow the performance of the Fidelity US Value Factor Index, this ETF has its largest investments in Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and potent value names like Berkshire Hathaway.
In 2021, this ETF has begun to outperform the S&P 500. Again, this plays into the shift we’re seeing with investors veering away from stocks that demand big premiums, like Tesla (TSLA) and Netflix (NFLX).
4. Vanguard Russell 1,000 Value Index Fund ETF Shares
- Ticker: VONV
- 1-year return: 56.19%
- Assets under management: $5.1 billion
- Dividend yield: 1.85%
- Management fee: 0.06%
Averaging 12.02% annually since its inception, the Vanguard Russell 1,000 Value Index Fund ETF tracks large-cap US value stocks. Again, think Berkshire Hathaway, Johnson & Johnson, Disney and Comcast (CMCSA). Remarkably diversified with a whopping 857 stocks in its portfolio, this fund gives you big exposure to value stocks in US markets.
5. Gotham Large Value Fund Institutional Class
- Ticker: GVALX
- 1-year return: 54.74%
- Assets under management: $92 million
- Dividend yield: 1.46%
- Management fee: 0.75%
A smaller value fund at under $100 million in assets under management, the Gotham Large Value Fund seeks to create more competitive returns than the S&P 500. As far as value goes, this fund has done well. Averaging 13.47% since its 2015 inception, it has competed well against other funds focused on large value and has averaged better returns than the S&P 500’s historical 30-year average of around 12%.
Why these ETFs?
In choosing these funds, we looked for a combination of performance, size, benchmarks and managers. Let’s be honest: it’s been difficult for value to keep up with growth over the last decade. Cathie Wood’s tech-focused ARK Innovation ETF (ARKK) has produced average returns of 46.35% over the last five years, with one-year returns of 177.10%.
So why add value stocks or ETFs to your portfolio? Just ask Warren Buffett. Over time, value stocks are a predictable, stable investment. The valuations are lower, and these securities tend to fare better in times of market turmoil. My inclusion of funds such as the Vanguard S&P Mid-Cap 400 Value Index Fund ETF Shares aims at adding exposure to those smaller capitalized companies that have the potential to really grow.
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