Last month we purchased Fidelity Limited Term Bond (FJRLX) in our model portfolio. Part of our strat...
Out-of-the-Box Value ETFs
09/29/2015 9:00 am EST
Two relatively new ETFs came across my watch list as potential candidates for investors seeking an outside-the-box approach to value selection screens, suggests David Fabian of FMD Capital.
Both funds are built using a more concentrated portfolio focused on stocks with solid balance sheets and sound business qualities.
Both offer a unique approach to value investing that should not be overlooked. They can potentially add value as tactical positions that compliment your core ETF portfolio.
ValueShares US Quantitative Value ETF (QVAL)
QVAL is an actively managed ETF that debuted in late 2014; it has amassed over $50 million in assets spread amongst 40-50 individual holdings.
This fund is managed by Wesley Gray, PhD, who has written extensively on the attributes of quantitative values and behavioral finance.
QVAL uses three separate screening criteria to hone in on a focused number of stocks that it believes offer solid value alongside quality long-term business fundamentals.
The goal is to invest in the cheapest, high quality stocks in order to try and outperform a more passive index.
The significantly higher fees of the actively managed portfolio are to be expected for a unique strategy using proprietary screening and construction methodologies.
In my opinion, this fund should warrant consideration for those seeking an alpha generating strategy for the value sleeve of their equity portfolio.
Deep Value ETF (DVP)
DVP is another value-oriented strategy that debuted in 2014. This fund is based on the TWM Deep Value Index, constructed of 20 dividend-paying stocks within the S&P 500 with solid balance sheets, earnings, and strong free cash flow.
The extremely concentrated nature of the DVP portfolio means this ETF will be more susceptible to individual business risks and opportunities of the underlying stocks than its peers as well.
I would expect that the DVP portfolio will experience pronounced periods of underperformance and outperformance depending on the prevailing market environment.
This ETF is certainly worth a look for investors that like the comfort of a passive index with a stock picker’s mentality.
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