With the stock market rotating from growth to value in recent months, you may be thinking of joining the party.
The Russell 1000 Value index of predominantly large-cap stocks has eased 1.1% over the past six months, compared to a 10% drop for the Russell 1000 Growth index. Those numbers may dissuade you from buying any stocks.
But if you do want to consider large-cap value stocks -- large-cap is generally the safest size -- here is a list of four exchange-traded funds that are among those given medalist ratings by Morningstar. It rates top funds gold, silver and bronze, just like the Olympics.
Vanguard Value ETF (VTV) is the only gold-rated fund in the segment. “Vanguard Value Index' broadly diversified portfolio, consistently low turnover, and low fee make it one of the best large-value funds available,” Morningstar analyst Ryan Jackson wrote in a commentary.
The fund tracks the CRSP U.S. Large Cap Value Index. “The index buffers … promote diversification, as stocks can float well into growth territory and remain in the portfolio,” he said. “This fund includes numerous blend [growth and value] stocks that help buoy performance when value slumps.”
The fund diversifies in other areas too, including by sector, Jackson said. “And a broad reach prevents firm-level concentration.”
The iShares Core S&P U.S. Value ETF (IUSV) is rated silver. It “offers broad exposure to the cheaper half of the U.S. market at a very low price,” wrote Morningstar’s Jackson. “Its well-diversified portfolio embodies the market's collective expertise and should stack up well against its Morningstar category [large-cap value ETF] peers over the long term.”
The fund is based on the S&P 900 Value Index, which includes stocks from the S&P 500 and S&P MidCap 400 indexes. “While the fund's deep reach gives it a smaller-than-average market-cap orientation, it represents the category average quite well,” Jackson said. “Its sector composition and value tilt all closely mimic the category norm.”
Schwab US Large-Cap Value ETF (SCHV) is rated silver. It is “an excellent large-value fund,” Morningstar’s Jackson wrote. “It charges a razor-thin fee for a broadly diversified portfolio that captures the full opportunity set available to active large-value investors.”
The fund replicates the Dow Jones U.S. Large-Cap Value Total Stock Market Index. “Index buffers improve diversification, … allowing stocks to dip into growth territory without trading them immediately,” Jackson said.
“So, although this portfolio does not overlap with its growth counterpart like most style index funds, it holds blend stocks … that help diversify the fund.”
SPDR Portfolio S&P 500 Value ETF (SPYV) is rated silver. The fund “offers a diversified basket of U.S. large-value stocks at a compelling price,” Jackson wrote. “Its broadly diversified, market-cap-weighted portfolio should outperform its peers on a risk-adjusted basis over the long term.”
It tracks the S&P 500 Value Index, as the name indicates. “The resulting portfolio effectively diversifies risk and features nearly 400 of the market’s largest value stocks,” Jackson said.
“Courtesy of its broad reach, this is one of the best-diversified funds in the category.” As of Dec. 31, top holding Berkshire Hathaway (BRK.B) accounted for just 2.86% of the fund. And it “avoids big sector bets,” Jackson said.
