IUSV: Ride The Value Transition

seekingalpha08-17

IUSV is a buy due to market transition to value, technical indicators, and potential for capital appreciation. IUSV tracks S&P 900 Value Index, offering smart beta ETF with low expense ratio ...

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href=https://seekingalpha.com/article/4715370-iusv-ride-the-value-transition><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>IUSV is a buy due to market transition to value, technical indicators, and potential for capital appreciation.\n        IUSV tracks S&P 900 Value Index, offering smart beta ETF with low expense ratio ...</p>\n\n<a href=\"https://seekingalpha.com/article/4715370-iusv-ride-the-value-transition\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1162221912.USD","symbol_name":"FRANKLIN INCOME \"A\" (USD) 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strong investment option in the short and medium-term.\n           We Are My view is that the iShares Core S&P U.S. Value ETF (NASDAQ:IUSV) is a buy. Reasons supporting my thesis is that we're witnessing a market transition from growth to value, its technical indicators, and potential for substantial capital appreciation in the short-term. IUSV has been on my watch list for a number of months, and now it is showing the right indicators (due to recent price action and fund inflows) for me to take action and buy shares. I'm confident about the market making a full transition to value stocks, and the market is showing it's willing to pay a premium for stable, dividend paying companies in this uncertain environment. IUSV Overview One of the things I appreciate about IUSV is that it's a smart beta ETF that tracks the performance of the S&P 900 Value Index. This itself a subset of the S&P 900 Index, which combines stocks from the universe of the S&P 500 and the S&P MidCap 400. The S&P 900 Value Index tracks the same stocks in both indices, however, the weight it gives to those stocks and its inclusion criterion is based on their value characteristics, not just their market capitalization. In practice, the index evaluates these stocks based on three factors: the price-to-book (P/B) ratio, the price-to-sales (P/S) ratio, and the (P/E) ratio. Companies with lower, standardized valuation ratios are given higher value scores. These scores are then adjusted for the stock's market capitalization and are then ranked in the index. Interestingly, IUSV only tracks 736 stocks in the S&P 900 Value Index at the time of writing. Comparatively, the S&P 900 Growth Index tracks 489 stocks. In a rough sense, this suggests to me that there are more investment opportunities for value than there is for growth, as more stocks are trading at lower valuation ratios than there are for companies with strong earnings potential.  ETF Composition IUSV has $18.61B assets under management, and charges a 0.04% expense ratio. It is then highly liquid with tight spreads and one of the most economical ETFs investors can buy. It's just 0.01% more expensive than Vanguard S&P 500 ETF's (VOO) 0.03% expense ratio. IUSV's composition is one of the key reasons I think that it will continue to rise higher in the short-term. It is a smart beta ETF, but I also consider it to be a relatively low-beta ETF as well, offering defensive characteristics and safety from compounding losses. Data by YChartsIUSV's holdings represent a generally balanced blend of cyclical (financials, industrials) and defensive sectors (health care, consumer goods). Some of the largest holdings of IUSV include Berkshire Hathaway Inc. (BRK.B), JPMorgan Chase & Co. (JPM), and Exxon Mobil Corporation (XOM). These companies have a weighting of 3.68%, 2.81%, and 2.49%, respectively. AuthorIn the financial category, big banks dominate the mix, with over a 55% weighting, the largest of which include JPMorgan Chase & Co (JPM) and $Bank of America Corp(BAC-N)$ (BAC). Smaller, more regional banks are included in the mix too, but these account for a weighting of just around 3.9% for the financial sector. IUSV pays a dividend, with a dividend yield of 1.87%. In terms of immediate income potential it might be lagging behind other ETFs in the market, however its dividend growth rate amongst value ETFs is among the best over the last decade. Data by YChartsPerformance and Valuation Thanks to IUSV's strong dividend yield and growth rates, I'm confident that it will be able to outpace other value ETFs over time. It has managed to keep pace with the S&P 500 ETF (SPYV) over the last five years. This is impressive considering that SPYV only invests in companies listed in the S&P 500 and without the S&P MidCap 400 component. Data by YChartsMy view is that ISUV is primed for further growth in the short-term and for the foreseeable future. ISUV has experienced consistent buying pressure that started to take off in October last year, as evidenced by the rising on balance volume. It has kept this pressure whilst consistently making higher highs and bouncing back up from overbought levels on the RSI. It then has a very strong trend in play that has been building for well over a year, confirmed through its volume and rising momentum without staying in unsustainable territory for long. AuthorAs expected, the ETF is experiencing average net fund flows year-to-date, and I think this can be partially explained with a simple observation. ETF.comLiquidity is rushing to other sectors other than tech. Even VOO is seeing lower average fund flows over the last three months while other ETFs are rising. ETF.com AuthorAnother factor at play here is that it may be unlikely that the Bank of Japan has finished hiking interest rates, and it has an interest rate meeting on 23 August to discuss its next steps. Judging from the market's last reaction to BOJ's interest rate hike, which led to a 6% drop in the S&P 500, I believe that additional sell-offs will become a conditioned occurrence to additional rate hikes. Although it can be assumed that many of the carry trades in yen have been unwound or are in the process of unwinding, the fear and expectation of another big drop on BOJ's rate hike announcement could be exactly what springs it into action. I then expect investors to rotate more into value ETFs such as IUSV as a precaution.  Risks Upside risks must be acknowledged. Although the valuation of the S&P 500 currently sits at around the 27x earnings level, this is reflective of the expected earnings, primarily of big tech, in the near future. Tech has dominated over the past few years, and if the current trend of tech outperformance lasts, then a high opportunity cost could be realized by investors who rotate their capital into value too early.  The other side of the blade is that low valuation ratios typically reflect low expected sales, earnings, and book value of equity growth, meaning they trade at a discount for a reason. Would you invest money in a company that's expected to underperform over the next few years? Relative to its stock price in the market, it's bargain, but side by side to sexier stocks and indices with superb guidance, that value proposition can seem less appealing. Takeaway  Even when discounted for the risks involved, I think ISUV could outperform other indices in the short and medium-term thanks to its strong inflows, volume, and showing high relative strength without entering overbought territory. Value stocks once featured heavily on people's radars post-covid, and when AI became the new fad, their attention and dollars quickly went. With heightened tensions, risks, and valuations of tech companies, I expect that value will come into fashion once again. IUSV is suitable for a short-term swing trade, thanks to its strong momentum, and investors looking to buy and hold an undervalued ETF at its current levels.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2460786934"}