Buying Value for 2010
Investors are constantly labeled and grouped into certain camps. Bull or bear. Fundamental or technical. And of course value or growth. The truly successful investors find ways to merge all of these styles for the best portfolio diversification and protection, so it’s certainly a good idea to examine each approach and how to execute them as market conditions permit.
One battle that always seems to be raging is value vs. growth. Growth investors embrace stocks like Apple (AAPL) and Google (GOOG). While growth stocks rarely pay dividends, they are supposed to make up for the lack of shareholder compensation with outsized capital gains. On the other hand, value investors look for blue chip names that the market has passed by or that have fallen out of favor with investors. Value investing is usually associated with defensive investing. With the recent market rally looking a bit tired, value investing may be back in vogue. That’s why we’ve been highlighting various Frugalpalooza ideas this year.
With that in mind, we decided to take a look at an ETF that is well-suited to the value investing school of thought: the aptly named Vanguard Value ETF (VTV). VTV is interesting in that it holds a huge number of stocks, 472 according to recent Vanguard data. The top 10 holdings account for nearly a third of VTV’s assets. To be sure, this is not an ETF for investors looking for small caps. The median market cap of VTV’s holdings is nearly $43 billion.
If investors decide they’ve had enough of the high-beta, riskier stocks that drove the recent rally, value funds like VTV should benefit in a big way. Investors should note that nearly a quarter of VTV’s holdings lie in the financial services sector. Names like Bank of America (BAC) and Wells Fargo (WFC) can be found among VTV’s top holdings.
That’s not a cause for concern because VTV is full of other quality names like oil giants Exxon Mobil (XOM) and Chevron (CVX), consumer titan Procter & Gamble (PG), and health care bellwether Merck (MRK). This is a blue chip lineup and is an ideal way to play defense. Owning some of the most venerable names in corporate America may be a good idea in tough times.
The bottom line is investors need not be pigeonholed by old Wall Street labels. There’s rarely a bad time to embrace value stocks. VTV is one way to do it.
Disclosure covering writer, editor, publisher, and affiliates: Long AAPL. No positions in any of the ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.