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Inside the new active value ETF from ValueShares

Just when the volatility levels are flaring up in the U.S. market thanks to the Fed tightening, global growth worries emanating from deflationary fears in Europe, a slowdown in various emerging markets and an Ebola outbreak, ValueShares came up with a new value ETF for investors. The ETF – U.S. Quantitative Value ETF (QVAL) – hit the market on October 22 and it comes into a pretty crowded corner of the market.

Below we have highlighted the fund in greater detail for investors seeking a new way to play value stocks:

QVAL in Focus

The newly launched actively managed ETF looks to pour their money into the inexpensive and high quality value stocks, per the issuer. To do so, the issuer uses a systematic technique.

The fund manager initially selects a group of mid-to-large cap stocks, then analyses financial statements and finally identifies stocks which boast lower enterprise value with respect to operating earnings as well as dirt cheap valuation before considering those as investment targets. The 40-stock fund charges 79 bps in fees for this exposure.  

How Could it Fit in a Portfolio?

The fund could be a good choice for value investors targeting the U.S. market. A value investing strategy gives investors exposure to stocks that are trading below their intrinsic values and are considered cheaper than other stocks. Value stocks usually have low price-to-earnings ratios, low price-to-book ratios and high dividend yields, as compared to their growth counterparts.
 
The cut in the Fed’s monetary stimulus might result in market volatility. Though the Fed has reaffirmed that the key interest rate will be kept at the record low level for a ‘considerable time’, the investing world has started speculating over the destined rate hike. So, it is almost certain that volatility will remain high in the coming months. In such a scenario, value products like QVAL should protect investors from market volatility.

The launch of the product seems well-timed as both the developed (except the U.S.) and the emerging markets are trying to find their footing following China and Russia woes, as well as the wrap-up of the quantitative easing by the Fed.
 
Can it Succeed?
 
The newly launched product is likely to face competition from quite a number of funds prevalent in the value equities space. Notably, the large-cap value equities space is presently headed by iShares Russell 1000 Value Index Fund (IWD) which has amassed about $23.6 billion in assets. The fund charges about 21 bps in fees. On the other hand, iShares Russell Midcap Value Index Fund (IWS) tops the mid-cap value equities ETF space with about $6.5 billion in assets.
 
Investors should note that QVAL is costlier than most of the well-known funds in this space, given the fact that the average expense ratio in this space is less than 50 bps. The product’s actively managed nature might have led to such hefty fees.  So, to attract investors’ money in the long run, we believe that QVAL needs to sell its actively managed nature and methodical stock-selection technique, and show some level of outperformance when compared to more ‘traditional’ ETFs in this space.

 
ISHARS-RS 1K VL (IWD): ETF Research Reports
ISHARS-RS M VL (IWS): ETF Research Reports
VALUSH-US QUANT (QVAL): ETF Research Reports
 
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Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.

Zacks Investment Research

Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.