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There is good reason to believe that large value stocks will, in
the long run and on average, tend to have higher risk-adjusted returns than
large growth stocks. There are several similar-seeming investment options
available. Which is best?
All of the options discussed here will likely have somewhat similar performance
and any of them will probably get the job done quite well. You can't go far wrong choosing any
of the options listed here. However, there is a dramatic difference
between how funds investing in the absolute most "valuey" stocks perform versus
those investing in less "valuey" stocks. The funds are listed in rough overall
order of preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | Rydex S&P 500 Pure Value ETF (RPV). E/R: 0.35%.
This ETF tracks the S&P 500/Citigroup Pure Value Index. It is extremely valuey
(as measured by weighted average book to market value). Unlike
virtually all other passively managed funds, this fund isn't weighted by
market cap, but rather by "value-ness." This fund is rated
above DFLVX because it is slightly more valuey, despite being somewhat more
expensive, and because it is available to the general public. RPV's measure of "value-ness"
is not limited to book-to-market ratio. For more information on ETFs, see here.
Our preference for RPV over DFLVX is small.
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| DFA US Large Value Portfolio (DFLVX). E/R: 0.27%. This
fund is extremely valuey (as measured by weighted average book to
market value). It basically has a strategy of
emulating the returns of the
10% most valuey of the 90% of US publicly traded companies with the highest
market capitalization. As of 12/31/07, this fund's weighted average
book to market ratio was 49% more valuey than VIVAX/VTV. As of 1/31/08,
it was 17% less valuey than
that of RPV above.
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| Vanguard Mega Cap 300 Value ETF (MGV). E/R: 0.13%. This ETF is a
share class of the Vanguard Mega Cap 300 Value Index Fund Institutional Shares (VMVLX). As such, it
should benefit from greater internal efficiency that incoming cash flows
bring, as compared with other ETFs. It attempts to track the MSCI US
Large Cap Value Index of very large valuey companies. For more information on ETFs, see here.
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| Vanguard Value ETF (VTV). E/R: 0.10%. This ETF is a
share class of the Vanguard Value Index Fund (VIVAX). As such, it
should benefit from greater internal efficiency that incoming cash flows
bring, as compared with other ETFs. For more information on ETFs, see here.
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| Vanguard Value Index Fund (VIVAX). E/R: 0.20%. This
fund tracks the MSCI US Prime Market Value Index. While its expense
ratio is lower than DFLVX, the stocks it invests in are nowhere near as
valuey. This fund's low expense ratio is what makes it
relatively attractive.
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| iShares S&P MidCap 400 Value Fund (IJJ). E/R: 0.25%.
This ETF tracks the S&P Mid Cap 400 Value index. For more information on ETFs,
see here. As with any ETFs, if you aren't
investing a fairly large sum of money and/or don't intend to hold it for
several years, you probably should go with a non-ETF alternative.
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| iShares Russell MidCap Value Index Fund (IWS). E/R: 0.25%. This ETF
tracks the Russell MidCap Value index. For more information on ETFs, see
here.
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| iShares S&P 500 Value Fund (IVE). E/R: 0.25%. This
ETF tracks the S&P 500 Value index. For more information on ETFs,
see here.
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| iShares Russell 1000 Value Index Fund (IWD). E/R: 0.25%. This ETF
tracks the Russell 1000 Value index. For more information on ETFs, see
here.
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| SSgA streetTRACKS U.S. Large Cap Value Index Fund (ELV). E/R: 0.21%. This ETF
tracks the Dow Jones Large Cap Value Index. For more information on ETFs, see
here.
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| iShares Morningstar Large Value Fund (JKF). E/R: 0.25%. This ETF
tracks stocks which Morningstar considers to be "Large Value." For more information on ETFs, see
here.
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| WisdomTree Earnings Top 100 Fund (EEZ). E/R: 0.38%.
This ETF tracks the WisdomTree Earnings Top 100 Index of US Large Cap Value
stocks (i.e., the 100 stocks in the WisdomTree Earnings 500 Index with the
highest earnings yields). For
more information on ETFs, see
here. This fund seems too expensive and not
valuey enough, compared with the better choices above
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| WisdomTree Dividend Top 100 Fund (DTN). E/R: 0.38%.
This ETF tracks the WisdomTree Dividend Top 100 Index of US Large Cap Value
stocks (i.e., those large cap stocks with high dividend yields). For
more information on ETFs, see
here. This fund seems too expensive and not
valuey enough, compared with the better choices above. |
| Rydex S&P 500 Pure Value ETF (RPV). E/R: 0.35%.
This ETF tracks the S&P 500/Citigroup Pure Value Index. It is extremely valuey
(as measured by weighted average book to market value). Unlike
virtually all other passively managed funds, this fund isn't weighted by
market cap, but rather by "value-ness." As an ETF, it is
reasonable to expect this fund to be perfectly capital gains tax efficient.
That is why this fund is rated higher than DFLVX. For more information on ETFs, see here.
Our preference for RPV over DTMMX is relatively small.
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| DFA Tax-Managed U.S. Marketwide Value Portfolio (DTMMX). E/R: 0.37%.
This fund is really an all-market value fund, which makes it less style-pure
than we would like. The fund manages to minimize
dividend as well as capital gain distributions. As of
12/31/07, this fund's weighted average
book to market ratio was 42% more valuey than the
Vanguard Value Index Fund's (VIVAX). However, as of 1/1/08, its weighted
average book to market ratio was 25% less valuey than that of RPV above.
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| Vanguard Mega Cap 300 Value ETF (MGV). E/R: 0.13%. This ETF is a
share class of the Vanguard Mega Cap 300 Value Index Fund Institutional Shares (VMVLX). As such, it
should benefit from greater internal efficiency that incoming cash flows
bring, as compared with other ETFs. However, unlike other non-Vanguard
ETFs, this fund will be only as tax efficient as its underlying fund
— no more and no less. It attempts to track
the MSCI US Large Cap Value Index of very large valuey companies. For more information on ETFs, see here.
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| Vanguard Value ETF (VTV). E/R: 0.10%. This ETF is a
share class of the Vanguard Value Index Fund (VIVAX). As such, it
should benefit from greater internal efficiency that incoming cash flows
bring, as compared with other ETFs. However, unlike other non-Vanguard ETFs,
this fund will be only as tax efficient as its underlying fund
— no more and no less. For more information on ETFs, see here.
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| DFA US Large Value Portfolio (DFLVX). E/R: 0.27%. This
fund is extremely valuey (as measured by weighted average book to market
value). It basically has a strategy of emulating the returns of the 10%
most valuey of the 90% of US publicly traded companies with the highest market
capitalization. As of 12/31/07, this fund's weighted average
book to market ratio was 49% more valuey than VIVAX/VTV. As of 1/31/08,
it was 17% less valuey than
that of RPV above. We rated this fund below RPV because RPV approaches
DFLVX's degree of "value-ness" while being expected to be perfectly capital gains
tax efficient (DFLVX cannot be expected to be as tax efficient). RPV's
measure of "value-ness" is not limited to book-to-market ratio.
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| Vanguard Value Index Fund (VIVAX). E/R: 0.20%. This
fund tracks the MSCI US Prime Market Value Index. While its expense
ratio is lower than DTMMX, the stocks it invests in are nowhere near as
valuey. This fund's tax-efficiency should benefit from having an ETF
share class. This fund's low expense ratio is what makes it
relatively attractive.
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| iShares S&P MidCap 400 Value Fund (IJJ). E/R: 0.25%.
This ETF tracks the S&P Mid Cap 400 Value index. For more information on ETFs,
see here. As with any ETFs, if you aren't
investing a fairly large sum of money and/or don't intend to hold it for
several years, you probably should go with a non-ETF alternative.
|
| iShares Russell MidCap Value Index Fund (IWS). E/R: 0.25%. This ETF
tracks the Russell MidCap Value index. For more information on ETFs, see
here.
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| iShares S&P 500 Value Fund (IVE). E/R: 0.25%. This
ETF tracks the S&P 500 Value index. For more information on ETFs,
see here.
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| iShares Russell 1000 Value Index Fund (IWD). E/R: 0.25%. This ETF
tracks the Russell 1000 Value index. For more information on ETFs, see
here.
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| SSgA streetTRACKS U.S. Large Cap Value Index Fund (ELV). E/R: 0.21%. This ETF
tracks the Dow Jones Large Cap Value Index. For more information on ETFs, see
here.
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| iShares Morningstar Large Value Fund (JKF). E/R: 0.25%. This ETF
tracks stocks which Morningstar considers to be "Large Value." For more information on ETFs, see
here.
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| WisdomTree Earnings Top 100 Fund (EEZ). E/R: 0.38%.
This ETF tracks the WisdomTree Earnings Top 100 Index of US Large Cap Value
stocks (i.e., the 100 stocks in the WisdomTree Earnings 500 Index with the
highest earnings yields). For
more information on ETFs, see
here. This fund seems too expensive and not
valuey enough, compared with the better choices above
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| WisdomTree Dividend Top 100 Fund (DTN). E/R: 0.38%.
This ETF tracks the WisdomTree Dividend Top 100 Index of US Large Cap Value
stocks (i.e., those large cap stocks with high dividend yields). For
more information on ETFs, see
here. This fund seems too expensive and not
valuey enough, compared with the better choices above. |
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