A New Value ETF Hits the Market

Anemic growth in developed economies, the QE scenario and muted bond yields have kept value investing subdued in the past decade and boosted growth stocks. But the scenario is changing now. Since the growth sector relies on easy borrowing for superior growth and its value depends heavily on future earnings, a rise in long-term yields cuts the present value of companies’ future earnings.

And this is where value investing rises. Value stocks perform better in a rising rate environment. With the Fed hiking rates faster this year, value investing has every reason to shine. Moreover, during the peak of the pandemic, value stocks were hit hard. With economic reopening gaining traction, now is the time for them to flourish on beaten-down valuation.

No wonder, Gotham ETFs has launched a new value ETF this month. The name of the fund is the Gotham 1000 Value ETF GVLU.

Inside GVLU

The Gotham 1000 Value ETF (GVLU) is an actively managed ETF consisting of 400-600 securities selected from a universe of the largest 1,400 US securities, weighted towards those stocks priced at the largest discount to Gotham’s assessment of value. The net expense ratio is 0.50%. No stock accounts for more than 0.58% of the fund. Quidelortho Corp (0.58%), Sanderson Farms (0.57%) and CF INDS Hldgs (0.56%) are top three holdings of the fund.

How Does It Fit In a Portfolio?

Red-hot inflation and the resultant faster Fed rate hikes have made value investing a darling in 2022. Value stocks have a low price-to-book ratio (P/B)— a measure of market cap relative to tangible assets, per a Wall Street Journal article.

The lower the price-to-book ratio, the higher the value. This makes them a gem-like bet amid economic uncertainties. Plus, most value ETFs are financial sector-heavy and perform better in a rising rate environment.

The MLIV Pulse survey revealed that 1,087 global responses from retail investors, portfolio managers and strategists show an inclination for value investing for the rest of this year, as quoted on a Bloomberg article, two months ago.

As much as 74% of MLIV readers say stocks that look cheap relative to valuation fundamentals are set to outperform their growth counterparts for the rest of 2022. Value investing has largely underperformed since 2007 judging by the S&P 500 Index as growth-based tech stocks flexed muscles.

Competition

There are a lot of value-based products in this segment. Most popular products are the likes of Vanguard Small Cap Value ETF VBR (with $22.66 billion), SPDR Portfolio S&P 500 Value ETF SPYV (with $12.4 billion), iShares MSCI EAFE Value ETF EFV (with $14.19 billion), iShares Russell Mid-Cap Value ETF IWS (with $12.59 billion), iShares MSCI USA Value Factor ETF VLUE( with $9.11 billion), First Trust Large Cap Value AlphaDEX Fund FTA (with $1.12 billion) and Invesco Dynamic Large Cap Value ETF PWV (with $742.2 million).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.