EPS

Hesitant to Wade Back into Value Stock ETFs?

A prominent post-Election theme is that value stocks are finally ready to rally, but some advisors may still be skittish about their prospects.

One way for asset allocates to inch back into value stocks is with model portfolios, such as the WisdomTree Core Equity Model Portfolio.

“This model portfolio is designed for growth-oriented investors with a long-term horizon looking to maximize long-term potential for capital growth through a globally diversified set of equity ETFs,” according to WisdomTree.

Growth stocks can be seen as exorbitant and overvalued, causing some investors to favor value stocks, considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.

There are inklings value could be getting its mojo back.

Value Stock ETFs Coming Back in Vogue?

“Was last week the turnaround?,” writes WisdomTree Director of Asset Allocation Jeff Weniger. “If so, it would mark a switch that is 14 years in the making. The S&P 500 Growth Index’s bout of outperformance relative to the S&P 500 Value Index started in summer 2006. From July 31, 2006 through this past Friday, growth stocks returned 12% annually, a quintupling. S&P 500 Value, in turn, returned less than 7% annually, a return of “just” 156%.”

Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades.

Not all of the holdings in the WisdomTree Core Equity Model Portfolio are explicit value ideas, but some of the components offer unique, relevant spins on value investing.

That includes the WisdomTree Earnings 500 Fund (NYSEArca: EPS).

EPS YTD Performance

EPS targets an earnings-weighted index that screen for positive cumulative earnings over their most recent four fiscal quarter period and assigns weights to components to reflect the proportionate share of the aggregate learning’s each company generated, so those with greater earnings have larger weights. That gives the fund value and quality tilts.

 

For more on how to implement model portfolios, visit our Model Portfolio Channel.

Read more on ETFtrends.com.

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

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