Value vs. Momentum

November 8th, 2012
in contributors

Investing Daily Article of the Week

by Ben Shepherd, Featured Expert, Investing Daily

SSGA Funds added two new exchange-traded funds (ETF) to its lineup last week, with the launches of SPDR S&P 1500 Value Tilt ETF (NYSE: VLU) and SPDR S&P 1500 Momentum Tilt ETF (NYSE: MMTM).

As its name implies, SPDR S&P 1500 Value Tilt ETF will track an index of value stocks by overweighting components of the S&P 1500 index that trade at cheap valuations relative to the average index constituent. To divine true value, it examines metrics such as price to earnings, book value, cash flow, sales growth and dividends over the trailing five-year period.

SPDR S&P 1500 Momentum Tilt ETF will take the opposite tack, focusing on stocks in the S&P 1500 that show positive upward momentum as measured by price performance over the trailing 11 months.

Follow up:

Both funds are plays on “factor” investing, a trend that has becoming increasingly popular over the past year or so, as evidenced by the line of factor funds launched by Russell ETFs. While factor ETFs may be faddish at the moment, they are helpful for investors who are looking to isolate particular types of exposures, such as high or low volatility, momentum or beta.

Although SSGA’s two new funds play into that trend, in contrast to their peers, they take a much more basic approach to isolating broad factors. That’s good because generally the more complex a fund’s methodology, the more likely it should be avoided.

Both funds will be rebalanced quarterly. They charge a 0.35 percent annual expense ratio, which is inexpensive enough to make them attractive once they build sufficient trading volume.

BlackRock also launched four new iShares products last week: iShares Core MSCI EAFE ETF (NYSE: IEFA), iShares Core MSCI Emerging Markets ETF (NYSE: IEMG), iShares Core MSCI Total International Stock ETF (NYSE: IXUS) and iShares Core Short-Term US Bond ETF (NYSE: ISTB).

These latest products are part of State Street’s strategy to offer a line of ETFs that go back to basics. The funds are geared toward buy-and-hold investors and, as their name suggests, they’re meant to be core holdings.

iShares Core MSCI EAFE ETF tracks the MSCI EAFE Investable Market Index, which includes about all of the world’s developed markets with the exceptions of the US and Canada. The iShares Core MSCI Emerging Markets ETF tracks most of the world’s major emerging markets via the MSCI Emerging Markets Investable Market Index. Finally, the iShares Core MSCI Total International Stock ETF tracks all global markets with the exception of the US.

On the fixed-income side, iShares Core Short-Term US Bond ETF tracks an index comprised of Treasuries and corporate bonds with at least one year and less than five years remaining to maturity.

In addition to the launch of these four funds, State Street rebranded five other funds by adding “Core” to their names and reducing their expense ratios. The rebranded funds are: iShares Core S&P Total US Stock Market ETF (NYSE: ITOT), iShares Core S&P 500 ETF (NYSE: IVV), iShares Core S&P Mid-Cap ETF (NYSE: IJH), iShares Core S&P Small-Cap ETF (NYSE: IJR) and iShares Core Total US Bond Market ETF (NYSE: AGG).

The Core funds cover almost every major asset class, and all charge low annual expense ratios, capping out at 0.18 percent on iShares Core MSCI Emerging Markets ETF. As a result, individual investors can easily build inexpensive asset allocation portfolios or use a core-and-satellite investment strategy. Given their simple strategies and low costs, this new iShares approach will also be helpful to financial advisors. Shrewd move, BlackRock.

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About the Author

Benjamin Shepherd is a recognized exchange traded fund (ETF), mutual fund and stock expert with an extensive background analyzing time-tested funds, their management and investment strategies which have proven themselves in both bull and bear markets. He and his team spend hours every month discussing the state of the global economy and the markets with many of the best known and well-respected money managers in the industry. Benjamin then distills the insight derived from those discussions, mixes in his own analysis and provides actionable advice geared towards generating strong returns while preserving capital for both fund and stock investors.

Ben is editor of Global Investment Strategist, which examines top-performing investments in Brazil, Russia, India, China, Japan, Indonesia, South Korea, and other rising economic powers. He's also editor of Benjamin Shepherd’s Wall Street, born from his years learning from famed investment guru Louis Rukeyser and subsequently serving as editor of Louis Rukeyser’s Wall Street and Louis Rukeyser’s Mutual Funds. The new publication generates a steady stream of stock, fund and bond recommendations driven by a long-term view emphasizing common sense over the short-term tumult of the markets.

Along with these duties, Ben finds time to regularly contribute to Personal Finance, Investing Daily's flagship product.

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