Value investing has consistently been one of the most successful long-term investment strategies. Legendary investors like Warren Buffett have effectively utilized this approach to achieve impressive returns over time.

However, in recent years, value stocks have significantly lagged behind growth stocks, especially as low interest rates boosted the valuations of rapidly growing companies. From 2011 to 2020, large value funds underperformed large growth funds by more than 5 percentage points annually, according to Morningstar. In 2020 alone, the gap reached an astonishing 32.2 percent.

With the Federal Reserve raising interest rates to address high inflation, many investors believe value stocks may be positioned for a period of outperformance.

In 2022, value stocks showed resilience, with the Russell 1000 Value Index declining about 7.5 percent, while the Russell 1000 Growth Index fell over 29 percent. However, in 2023, this trend reversed, as the value index rose approximately 11.5 percent, in contrast to a roughly 42.7 percent increase for the growth index.

Here are some top value ETFs to consider for your portfolio.

Top value ETFs

Vanguard Value ETF (VTV)

The Vanguard Value ETF aims to replicate the performance of the CRSP U.S. Large Cap Value Index, which focuses on large-cap value stocks. The fund comprises approximately 350 different stocks.

  • 5-year annualized returns: 10.8%
  • Expense ratio: 0.04%
  • Assets under management: $117.8 billion
  • Top holdings: Berkshire Hathaway (BRK.B), Broadcom (AVGO), JPMorgan Chase (JPM), and Exxon Mobil (XOM)
  • Dividend yield: 2.4%

iShares Russell 1000 Value ETF (IWD)

IWD aims to mirror the performance of the Russell 1000 Value Index, which features large- and mid-cap U.S. stocks with value characteristics. The fund provides investors with exposure to companies considered undervalued compared to their peers.

  • 5-year annualized returns: 9.0%
  • Expense ratio: 0.19%
  • Assets under management: $55.0 billion
  • Top holdings: Berkshire Hathaway (BRK.B), Exxon Mobil (XOM), JPMorgan Chase (JPM), and Johnson & Johnson (JNJ)
  • Dividend yield: 1.9%

Vanguard Small-Cap Value ETF (VBR)

The Vanguard Small-Cap Value ETF aims to track the performance of the CRSP U.S. Small Cap Value Index, which reflects the returns of small-cap value stocks. The fund comprises over 800 stocks, with 6% of its assets invested in the top 10 holdings.

  • 5-year annualized returns: 9.4%
  • Expense ratio: 0.07%
  • Assets under management: $28.2 billion
  • Top holdings: Carlisle Companies (CSL), Booz Allen Hamilton (BAH), Builders FirstSource (BLDR), and First Citizens BancShares Class A (FCNCA)
  • Dividend yield: 2.1%

Vanguard Mid-Cap Value ETF (VOE)

The VOE ETF aims to track the performance of the CRSP U.S. Mid Cap Value Index, which focuses on mid-cap value stocks. Its holdings typically fall between small- and large-cap stocks, encompassing around 200 stocks, with 12% of the fund allocated to the top 10 holdings.

  • 5-year annualized returns: 9.0%
  • Expense ratio: 0.07%
  • Assets under management: $16.7 billion
  • Top holdings: PACCAR (PCAR), Arthur J. Gallagher & Co (AJG), Carrier Global (CARR), and PG&E (PCG)
  • Dividend yield: 2.2%

Fidelity High Dividend ETF (FDVV)

The Fidelity High Dividend ETF focuses on large- and mid-cap companies projected to pay and increase dividends over time. The fund consists of approximately 100 stocks, with 32% of its assets invested in the top 10 holdings.

  • 5-year annualized returns: 13.8%
  • Expense ratio: 0.15%
  • Assets under management: $2.9 billion
  • Top holdings: Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), and Broadcom (AVGO)
  • Dividend yield: 3.1%

SPDR Russell 1000 Yield Focus ETF (ONEY)

ONEY aims to deliver investment results that typically align with the performance of the Russell 1000 Yield Focused Factor Index. The fund seeks to generate above-average dividend payments to enhance total returns.

  • 5-year annualized returns: 11.6%
  • Expense ratio: 0.20%
  • Assets under management: $788.8 million
  • Top holdings: Diamondback Energy (FANG), Dow Inc. (DOW), Devon Energy (DVN), and Valero Energy (VLO)
  • Dividend yield: 3.0%

What is value investing?

Value investing can have various interpretations, but broadly, it involves acquiring investments that offer more value than their purchase price. Growth is a key factor in determining a company’s value to shareholders, and rapidly growing companies can also be considered good value, depending on their purchase price.

In the professional investing landscape, funds are categorized into segments like value and growth. This classification necessitates a more precise definition of value and growth. Value funds typically invest in companies with lower price-to-book and price-to-earnings ratios compared to a broad market index. They often feature higher dividend yields and lower anticipated earnings growth in the future.

In Conclusion

Investing in value ETFs offers a straightforward way for investors to buy stocks considered undervalued by the market. By holding a collection of these stocks through an ETF, you can bypass the extensive research typically needed for individual stock purchases. Additionally, you’ll benefit from diversification, owning shares across various industries that usually trade at below-average earnings and asset multiples.