A Value ETF Looks For Big Things In 2017

The value factor was vindicated last year after lagging its growth counterpart for a substantial part of the current bull market.

Just look at the iShares S&P 500 Value Index (ETF) IVE and the Vanguard Value ETF VTV. IVE and VTV, two of the largest exchange-traded funds dedicated to value stocks, both returned more than 17 percent last year while the S&P 500 gained “just” 12 percent. So, it can be said that ETFs like IVE head into 2017 with some momentum, and the iShares ETF garnered some acclaim as CFRA Research's focus ETF for the month of January.

The Value Strategy

“The S&P 500 Value index, the benchmark that IVE seeks to track, has outperformed its Growth sibling in 2016. Yet value lagged growth the three prior calendar years as what should serve as reminder of using past performance solely when making fund selections. Value's success in 2016 has been in part due to the sectors it has the most and least exposure to,” said CFRA Research in a note out earlier this week.

As has been previously noted, sector hallmarks of traditional value ETFs like IVE include large weights to the energy and financial services sectors, two of last year's best-performing groups. IVE obliges with a combined weight of just over 39 percent to financial services and energy, in that order.

For investors looking to use value ETFs as gauges regarding what sectors are richly valued, it can be considered noteworthy that three of IVE's four smallest sector weights are interest rate-sensitive sectors: utilities, telecom and real estate. Those groups combine for nearly 12 percent of IVE's weight.

Although defensive consumer staples stocks are generally considered pricey, that is IVE's third-largest sector weight at 11.6 percent.

Volume And Ratings

“Volume for IVE has picked up in recent months, with 1.09 million shares trading on average in the past month, up from 860,000 over the six month period. The ETF is above its 200-day moving average, creating a bullish technical indicator. Meanwhile, the bid/ask spread is just a penny,” said CFRA.

The research firm has Buy or Strong Buy ratings on six of IVE's top 10 holdings, a group that combines for just under 27 percent of the ETF's weight. Four of IVE's top 10 holdings are members of the Dow Jones Industrial Average.

CFRA Research has an Overweight rating on IVE, the research firm's highest fund rating. IVE had 352 holding as of the end of the fourth quarter.