Value ETFs

Value ETFs invest in stocks that appear undervalued relative to fundamental measures such as earnings, book value, dividends, and cash flow. The value investment style, popularized by Benjamin Graham and Warren Buffett, is based on the principle that buying stocks below their intrinsic worth leads to superior long-term returns as the market eventually recognizes the discount.

Leading value ETFs include VTV (Vanguard Value ETF), the largest and lowest-cost broad value fund with exposure to hundreds of undervalued large-cap stocks, IWD (iShares Russell 1000 Value ETF), which tracks the Russell 1000 Value Index and is the most widely benchmarked value fund, and SCHV (Schwab U.S. Large-Cap Value ETF), which offers competitive pricing and a concentrated approach to large-cap value stocks.

Value ETFs are appropriate for investors seeking potentially higher long-term returns with a margin of safety built into purchase prices. Value stocks tend to pay higher dividends and exhibit less downside during market corrections compared to growth stocks. However, value investing requires patience, as the style can underperform growth for extended periods, as it did from 2007 to 2020. Many advisors recommend holding both value and growth ETFs to maintain style diversification. Value ETFs typically overweight financials, healthcare, energy, and industrials relative to the broader market.