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ETFs overview : Small caps Value and share buybacks

07/29/2021 | 10:35am EDT

This week's ETF roundup includes an ETF exposed to US small cap value stocks, which historically outperform the S&P 500. Let's also take a look at a so-called Buy Back ETF that replicates the Nasdaq Global Buyback Achievers Index, exposed to companies that buy back their own shares.

US Small Cap Value

The iShares US Small Cap Value Factor ETF (SVAL) is an index tracker that seeks to replicate the performance of the Russell 2000 Focused Value Select Index. Small cap value stocks tend to outperform their benchmark market. In fact, according to a recent Russell Investments study from 2020, over the last 90 years, US small-cap value stocks have delivered a return of annualized return of 12.5% versus 11.2% for big-cap value, 8.8% for small-cap growth and 9.2% for big-cap growth. Moreover, according to a study published by Vanguard Research, the manager expects value stocks to outperform growth stocks over the next 10 years.

However, index management seems to have favored big caps in recent years by overweighting them in the index allocation, which creates a snowball effect that increases their market capitalization and thus their weight in the indices. This explains the outperformance of the S&P 500 over the last ten years. On a year-on-year basis, however, the index is doing very well (see chart below).

The iShares US Small Cap Value Factor ETF allows investors to benefit from this very long-term trend at a lower cost (0.30%). The stocks that make up the ETF have an average P/E of 15.82, well below the market average of 33.58 for the S&P 500. 

Source: Marketscreener.com

 

Invesco Global Buyback Achievers

This tracker provides exposure to companies that have bought back their own shares over the last 12 months, for an amount equal to at least 5% of the shares in circulation. It tracks the Nasdaq Global Buyback Achievers index, which has an annualized net return of 13.23% over 10 years.

Generally, the act of buying back shares sends a positive signal to the market. It shows us that the company is confident and prefers to invest its cash in its own shares, it invests in itself. It is also another way of remunerating its own shareholders without distributing a share of the profits directly. By buying back its shares and cancelling them, the value of the company's shares still in circulation will increase.

Since the beginning of the year, it has gained almost 22%. Here are the Top 10 of the ETF's 258 holdings:

Source: Marketscreener.com


ę MarketScreener.com 2021
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