How to Add Value to a Diversified Investment Portfolio

VValue-driven exchange-traded fund strategies can add value to any investment portfolio.

In the recent webcast, Explore the benefits and uses of value strategiesNick Kalivas, Head of Factor and Core Equity Product Strategy, Invesco, highlighted a few reasons why investors have turned to the value style.

For example, many have seen the value of buying cheap assets that are trading below their intrinsic value. There has been a surge in mega-cap growth stocks, which has fueled the need to diversify the focus in market caps while stretching market valuations. Additionally, the cyclical recovery and expected benefits of a normalized economy after COVID-19 have helped support the value story.

Even after the recent run in value style, Kalivas stressed that value is still inexpensive compared to growth based on price-to-earnings and price-to-sell ratios.

Going forward, rising industrial production may continue to favor value over growth as the economic recovery accelerates, Kalivas added.

As investors consider the value style, Craig Lazzara, Managing Director, Global Head of Index Investment Strategy, S&P Dow Jones Indices, explained that value scores are determined by a combination of earnings / price, book / price and sales / price. However, the different indexing methodologies can modify the value criteria in several ways. For example, the S&P 500 Stock Index may even include stocks that appear in both growth and value categories. On the other hand, the S&P 500 Pure Value Index is a more targeted approach to the value factor. Compared to the S&P 500 Value Index, the S&P 500 Pure Value Index has three times more exposure to value.

To better focus on the value game, Kalivas emphasized the Invesco S&P 500 Pure Value ETF (RPV), which tracks the S&P 500 Pure Value Index. The RPV provides pure value exposure with the potential to improve portfolio results through market cycles and when value favors. It offers portfolio diversification where exposure to pure value leads to more robust portfolio diversification. Additionally, the ETF provides an efficient implementation of the value factor budget, helping investors access more value with less money.

Kalivas believes that there are four potentially effective ways to implement VPN in a diversified portfolio. Investors can use VPN to create a more robust ‘barbell’ approach to value and growth, use VPN to achieve expected value exposure by leaving excess funds to invest in other core strategies or satellites, supplement factor exposure to strengthen the portfolio base through an additional factor lens, and increase exposure to cyclical sectors.

Further, Kalivas argued that the Invesco S&P 500® Equal Weight ETF (RSP) can offer attractive value to investors. RSP’s expense ratio is 75% lower than its peers. RSP can diversify a core market cap weighted equity strategy, complement a large cap growth equity strategy, and replace active high cost or underperforming strategies.

Financial advisors who want to learn more about value strategies can watch the webcast here on demand.

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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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