High inflation levels, the aggressive stance of the Fed on interest rate hikes and the Russia-Ukraine war crisis have added to the market uncertainties in 2022. After a disappointing performance last week, the major market indices are in the red this week as well. The S&P 500 index has lost 0.9% so far this week. The blue-chip Dow Jones Industrial Average index and the tech-heavy Nasdaq Composite indices are also down 0.5% each in the same period.
Per the latest Labor Department report, the Consumer Price Index (CPI) jumped 8.5% year over year in March, reaching the highest level since December 1981 (according to a CNBC article). The reading also surpassed the already high Dow Jones estimate of 8.4%. The high inflation level can set the tone for another interest rate hike soon.
The core inflation index, which excludes volatile components such as food and energy prices, rose 6.5% year over year, marking the hottest reading since August 1982 (per a CNBC article). Energy prices remained a key contributor to the inflation numbers, with a 32% year-over-year increase.
The core personal consumption expenditures (PCE) price index rose 5.4% year over year, witnessing the largest jump in 40 years (per a CNBC article). The Federal Reserve considers this metric the most dependable inflation indicator. The index was a little shy of the Dow Jones estimate of 5.5%.
Going on, the dual forces constituting the Russia-Ukraine conflict and the surging inflationary levels are weakening the U.S. consumer sentiment levels. The rising commodity prices due to the war crisis are increasing consumers' struggles. The latest disappointing consumer sentiment final reading for March slipped to the lowest level in about 10 years, highlighting the same.
The University of Michigan’s consumer sentiment index dropped to 59.4 in March from the preliminary reading of 59.7 issued earlier in the month. The metric lagged the expectations of economists who estimated it to remain unchanged, per a Bloomberg’s survey.
The recently released FOMC minutes of the March meeting highlighted the central bank’s plans to control the inflation levels by larger interest rate hikes. It also outlined the method and magnitude of reducing the balance sheet holding around $9 trillion in assets. Notably, the Federal Reserve officials have decided to shrink their balance sheet by approximately $95 billion a month. More precisely, the Fed is planning to reduce $60 billion in Treasurys and $35 billion in mortgage-backed securities, phasing in over three months, starting May (per a CNBC article).
Value ETFs in Focus
Investors have been upbeat about the accelerated coronavirus vaccine rollout, solid fiscal stimulus support and reopening of the U.S. economy, which may lead to faster U.S. economic recovery from the pandemic-led economic slowdown. These factors created a conducive environment for value investing.
It is worth noting here that value investing seems more lucrative, given the rebounding U.S. economy, the expectation of higher inflation and the Fed’s aggressive stance on interest rate hikes. Moreover, value stocks seek to capitalize on market inefficiencies. They can deliver higher returns with lower volatility than their growth and blend counterparts. Additionally, value stocks are less exposed to trending markets and their dividend payouts offer a shield against market turbulence.
Against this backdrop, here are some top-ranked value ETFs that investors can consider betting on:
iShares S&P 500 Value ETF IVE
iShares S&P 500 Value ETF provides exposure to large U.S. companies that are potentially undervalued relative to comparable companies. With AUM of $25.44 billion, it charges 18 basis points (bps) in expense ratio. The fund carries a Zacks Rank #1 (Strong Buy) (read: Bet on These 5 Top-Ranked ETFs Amid Tough Market Conditions).
Vanguard Mega Cap Value ETF MGV
With AUM of $5.47 billion, Vanguard Mega Cap Value ETF tracks the performance of the CRSP US Mega Cap Value Index. It charges a fee of 7 bps and has a Zacks Rank #1 (read: ETF Areas to Consider for Rotating Out of Tech in 2022).
Schwab U.S. Large-Cap Value ETF SCHV
Schwab U.S. Large-Cap Value ETF’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Large-Cap Value Total Stock Market Index. With AUM of $10.39 billion, it charges 4 bps in expense ratio. The fund has a Zacks Rank #1.
Invesco S&P 500 Enhanced Value ETF SPVU
Invesco S&P 500 Enhanced Value ETF is based on the S&P 500 Enhanced Value Index. With AUM of $187.2 million, it charges 13 bps in expense ratio. The fund carries a Zacks Rank #1 (read: 5 Top-Ranked ETFs That Can Shine Bright in April).
Vanguard S&P 500 Value ETF VOOV
With AUM of $3.07 billion, the Zacks Rank #1 Vanguard S&P 500 Value ETF tracks the performance of the S&P 500 Value Index. It charges a fee of 10 bps and carries a Zacks Rank #1.
SPDR Portfolio S&P 500 Value ETF SPYV
SPDR Portfolio S&P 500 Value ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the S&P 500 Value Index. With AUM of $14.59 billion, it charges 4 bps in expense ratio. The fund carries a Zacks Rank #1 (read: 5 ETFs to Bet on Value Comeback).
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