Value

Value ETFs buy shares of companies with a lower valuation in the belief that shares that have low valuations tend to perform better. Typically, shares included in a portfolio will be selected because they have low price-earnings (P/E) ratios, low price-sales ratios (P/S) or low price-to-book (P/B) ratios.

It’s important to note that most value factor ETFs use a simple statistical measure of value which is often as uncomplicated as buying shares with low price-earnings (P/E) ratios or price-book (P/B) ratios.

Basically, if there’s a reliable data source on valuation factors from a company’s financial statements, chances are, somewhere in the world a rules-based ETF is already tracking it.

There are varying levels of complexity and sophistication in Value ETFs. However, research shows it’s often only the top few per cent of shares on the exchange that accounts for almost all of the sharemarket’s positive return. Therefore, we think it would be a mistake to avoid highly-valued shares.