Value investing has long been a successful strategy for investors looking to generate solid returns over time. Notable investors like Warren Buffett have utilized this approach to achieve impressive results in the stock market.
In recent years, however, value stocks have lagged behind growth stocks, largely due to low interest rates boosting the valuations of fast-growing companies. From 2011 to 2020, large value funds consistently underperformed large growth funds by over 5 percentage points each year, with a significant 32.2 percent gap in 2020 alone.
But with the Federal Reserve raising interest rates to combat inflation, some investors believe that value stocks may be poised for a comeback in terms of performance.
While value stocks outperformed growth stocks in 2022, the trend reversed in 2023, with growth stocks seeing a significant increase compared to value stocks.
Value investing involves getting more value from an investment than what you pay for. This can be achieved by investing in companies with lower price-to-book and price-to-earnings ratios, higher dividend yields, and lower expected earnings growth. Value ETFs provide an easy way for investors to gain exposure to undervalued stocks without the need for extensive research or analysis.
Some top value ETFs to consider include the Vanguard Value ETF (VTV), iShares Russell 1000 Value ETF (IWD), Vanguard Small-Cap Value ETF (VBR), Vanguard Mid-Cap Value ETF (VOE), Fidelity High Dividend ETF (FDVV), and SPDR Russell 1000 Yield Focus ETF (ONEY). These ETFs offer investors the opportunity to invest in a diversified portfolio of undervalued stocks across different market caps and sectors.
Overall, investing in value ETFs can be a strategic way to capitalize on undervalued stocks in the market. While past performance is not indicative of future results, value investing remains a popular strategy for investors seeking long-term growth opportunities in the stock market.