In this article, we discuss the 10 best value ETFs to invest in. You can skip our detailed analysis of these ETFs and the current market situation, and go directly to 5 Best Value ETFs To Invest In.
Amid fears over recession and higher inflation levels, U.S. ETFs hauled in about $297.3 billion in the first half of 2022, including $36.9 billion of inflows in June, as investors rush to put money in safer bonds. Additionally, stock ETFs collected $32.7 billion, while their fixed-income counterparts raked in $2 billion of new money earlier in May. In an interview with The Business Times, SGX market strategist Geoff Howie stated that ETFs have recorded higher assets under management over the past two to three years, and that the number of retail investors who are active within the ETF market has almost tripled over a 3-year time period.
Although Wall Street isn’t unanimously bullish on ETFs on account of their underlying indices running red, investors continued to pour into exchange traded funds due to the safety they provided, as well as long-term improving prospects. As investors flee tech stocks like Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA), and Amazon.com, Inc. (NASDAQ:AMZN), value ETFs are set to gain traction in the months to come.
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Our Methodology
We have selected exchange traded funds that offer exposure to some of the largest companies in their respective sectors and have discussed these ETFs in terms of their top holdings. The purpose of the article is to give readers a basic overview of some of the prominent, affordable value ETFs in the US.
Best Value ETFs To Invest In
10. Vanguard Value Index Fund (NYSE:VTV)
The Vanguard Value Index Fund (NYSE:VTV) is a fund that tracks the performance of the CRSP US Large Cap Value Index, which measures the investment return of large-capitalization value stocks, following a passively managed, full-replication approach. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
A premier holding of Vanguard Value Index Fund (NYSE:VTV) is Johnson & Johnson (NYSE:JNJ), the world’s largest healthcare firm. On July 7, Morgan Stanley analyst Terence Flynn raised the price target on Johnson & Johnson (NYSE:JNJ) to $174 from $173 and kept an Equal Weight rating on the shares after adjusting estimates ahead of the company’s upcoming Q2 report. He expects biopharma revenues to remain resilient in case economic activity slows and continues to believe companies that can deliver revenue growth in the second half of the decade are best positioned among the group
As of Q1 2022, 83 hedge funds in the database of Insider Monkey held stakes worth $7.4 billion in Johnson & Johnson (NYSE:JNJ). Of these, Arrowstreet Capital reported holding 6.65 million shares worth $1.17 billion in Johnson & Johnson (NYSE: JNJ).
Similar to Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA), and Amazon.com, Inc. (NASDAQ:AMZN), Johnson & Johnson (NYSE:JNJ) is one of the stocks on the radar of elite investors amid recession fears.
9. iShares Russell 2000 Value ETF (NYSE:IWN)
The iShares Russell 2000 Value ETF (NYSE:IWN) is a fund that seeks to track the investment results of the Russell 2000 Value Index, which measures the performance of the small-capitalization value sector of the U.S. equity market. The fund generally invests at least 80% of its assets in the component securities of its underlying index. It has a top 10 holdings concentration of 4.67% and primarily invests in the financial services, real estate, industrials, and energy sectors.
Ovintiv Inc. (NYSE:OVV) is one of the biggest holdings in iShares Russell 2000 Value ETF (NYSE:IWN)’s portfolio. Earlier this June, JPMorgan analyst Arun Jayaram upgraded Ovintiv Inc. (NYSE:OVV) to Overweight from Neutral with a price target of $64, up from $56. Following the recent pullback, Ovintiv Inc. (NYSE:OVV) shares are trading at a 33% free cash flow yield based on 2023 estimates, the fourth highest yield in the exploration and production group and the third highest return of capital yield in the space at 17.4%. The analyst has increased confidence around the company’s execution following its presentation at JPMorgan’s energy conference.
Among the hedge funds tracked by Insider Monkey, 44 funds were bullish on Ovintiv Inc. (NYSE:OVV) at the end of Q1 2022, with collective stakes worth over $2 billion. Paul Marshall and Ian Wace’s Marshall Wace LLP is the leading position holder in the company, with 4.8 million shares worth $263.3 million.
Here is what Miller Value Partners Opportunity Equity has to say about Ovintiv Inc. (NYSE:OVV) in its Q4 2021 investor letter:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
8. Vanguard S&P Small-Cap 600 Value Index Fund (NYSE:VIOV)
Vanguard S&P Small-Cap 600 Value Index Fund (NYSE:VIOV) invests in stocks in the S&P Small-Cap 600 Value Index, which comprises a group of value companies with market capitalizations between $300 million and $2 billion that trade on exchanges in the US. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting within the index. It invests most heavily in the financial, industrial, and consumer cyclical sectors.
A key holding of the Vanguard S&P Small-Cap 600 Value Index Fund (NYSE:VIOV) is Southwestern Energy Company (NYSE:SWN), a Texas-based natural gas exploration and production company. Wells Fargo analyst Nitin Kumar upgraded Southwestern Energy Company (NYSE:SWN) to Equal Weight from Underweight with a price target of $12, up from $10 on July 11. While an economic slowdown is certainly a risk for shale operators and commodity prices, the recent weakness is overdone, contends Kumar, who has updated price targets across the space to reflect updated oil and gas price outlooks, as well as higher inflation expectations, and made a number of associated rating changes.
As of the fiscal first quarter of 2022, 35 of the 912 hedge funds profiled by Insider Monkey had invested in Southwestern Energy Company (NYSE:SWN). David Iben’s Kopernik Global Investors is one of Southwestern Energy Company (NYSE:SWN)’s largest investors, with a $97 million stake in the company.
Greenlight Capital shared its outlook on Southwestern Energy Company (NYSE:SWN) in its Q1 2022 investor letter. Here’s what the firm said:
“SWN is the second largest producer of natural gas in the U.S. The company is well-situated to satisfy growing domestic and export demand. Over the short, medium and long term, Europe now intends to reduce its reliance on Russian energy and increase its use of U.S. LNG. Based on its 2021 year-end reserves – which assumed a $3.60/MMBtu long-term natural gas price – SWN has a PV-104 value of $13.83 per share. By the end of the first quarter, the U.S. natural gas 5-year forward curve averaged $4.28/MMBtu, while international seaborne LNG was close to $20/MMBtu. Over the intermediate term, with the benefit of substantial global investment in infrastructure, we expect prices for U.S. and international natural gas to converge. We acquired our shares at an average price of $6.58. SWN shares ended the quarter at $7.17.”
7. iShares MSCI USA Value Factor ETF (BATS:VLUE)
iShares MSCI USA Value Factor ETF (BATS:VLUE) is an exchange traded fund that seeks to track the investment results of the MSCI USA Enhanced Value Index composed of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations. The fund generally invests at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents.
iShares MSCI USA Value Factor ETF (BATS:VLUE) holds a large stake in AT&T Inc. (NYSE:T), an American multinational technology and communications firm. Scotiabank analyst Maher Yaghi assumed coverage of AT&T Inc. (NYSE:T) on June 30 with a Sector Perform rating and a $22.50 price target. The analyst sees good prospects for U.S. stocks in terms of pricing, even in wireless, “potentially offering growth after many years of being under pressure.”
According to Insider Monkey’s data, AT&T Inc. (NYSE:T) was part of 74 public hedge fund portfolios at the end of Q1 2022, up from 70 funds in the prior quarter. D E Shaw is a significant shareholder of AT&T Inc. (NYSE:T), with 13.8 million shares worth $326.5 million.
In its Q4 2021 investor letter, Weitz Investment Management, an asset management firm, highlighted a few stocks and AT&T Inc. (NYSE:T) was one of them. Here is what the fund said:
“After several quarters of pandemic-induced outsized growth, new broadband connection growth has slowed for U.S. cable operators. This slower growth has coincided with a renewed push by competitors like Verizon and AT&T Inc. (NYSE:T) to offer high-speed data (either via wireless connects or by building new fiber-optic networks).”
6. Vanguard Russell 1000 Value Index Fund (NASDAQ:VONV)
Vanguard Russell 1000 Value Index Fund (NASDAQ:VONV) is an exchange traded fund that employs an indexing investment approach designed to track the performance of the Russell 1000 Value Index, which is designed to measure the performance of large-capitalization value stocks in the United States.
A premier holding of the Vanguard Russell 1000 Value Index Fund (NASDAQ:VONV) is Berkshire Hathaway Inc. (NYSE:BRK-B), a firm that operates in the insurance, freight rail transportation, and utility industries worldwide through its subsidiaries. Earlier this May, Keefe Bruyette analyst Meyer Shields reduced the price target on Berkshire Hathaway Inc. (NYSE:BRK-B) to $560,000 from $565,000 and maintained a Market Perform rating on the shares. According to the analyst, Berkshire Hathaway Inc. (NYSE:BRK-B)’s operating profit per share of $4,774 beat Wall Street’s projection of $4,278 in the first quarter, owing to higher-than-expected non-insurance profits that were somewhat offset by lower insurance underwriting revenue and higher-than-expected taxes.
At the end of the first quarter of 2022, 104 hedge funds in the database of Insider Monkey held stakes worth $19.06 billion in Berkshire Hathaway Inc. (NYSE:BRK-B), down from 108 the preceding quarter worth $19.32 billion.
As tech stocks like Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA), and Amazon.com, Inc. (NASDAQ:AMZN) lose traction this year, value stocks like Berkshire Hathaway Inc. (NYSE:BRK-B) are gaining.
Here is what Weitz Investment Management has to say about Berkshire Hathaway Inc. (NYSE:BRK-A) in its Q1 2022 investor letter:
“The quarter’s standout performers were a pair of insurers, Berkshire Hathaway (BRK-A, BRK-B). Insurers typically benefit from a strong economy, as pricing tends to improve and the volume of risk to be insured grows. We also expect higher interest rates to translate into higher investment income as insurers recycle premium “float” into higher-yielding securities. Berkshire possess terrific management and top marks as opportunistic capital allocator.”
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Disclosure: None. 10 Best Value ETFs To Invest In is originally published on Insider Monkey.
