Although volatility is not yet at its peak, it is already making an appearance in the early stages 2022. Some market observers believe that stocks are the best option.
Fundamentals are solid and some market participants believe equities are still attractive relative to bond investments. These and other factors could bode well in exchange traded funds. American Century STOXXU.S. Quality Value ETF (VALQ).
Both individual and corporate finances are in good shape. BlackRock. Fourth quarter earnings are strong. 78% of the 172 S&P 500 companies that reported had reported positive earnings-per share surprises through January. Market anxiety is all about inflation and rates.
To make it even more compelling, VALQThe solid start to 2022 is a result of value stocks. That’s a sign that, at the very least, investors should consider balancing growth and value within their portfolios.
To achieve a better balance, we’d review current allocations. BlackRock adds that there was a significant rotation into value in the beginning of the year, as the intrinsically longer-duration cash flow of growth companies were being threatened by rising interest rate. We can see a new world order with higher rates and inflation, at least relative to the low levels experienced since 2008’s global financial crisis. This new paradigm is good news for value and opens up the possibility for underallocations to being addressed.
VALQThe, which tracks the iSTOXX American Century USA Quality Value Index, offers investors a unique spin on value investing, as it’s not excessively allocated to the financial services and energy sectors two staples of traditional value funds. Those sectors combine for just 7% of VALQ’s weight.
Rather, VALQ’s quality mandate leads it to a combined 37% weight to the technology and healthcare sectors, both of which are high quality groups and the latter of which is offering considerable value today.
Quality stocks were priced at a discount during the economic restart, especially because investors preferred riskier bets that paid off early in last year’s market recovery. They are expected to return higher in the next phase of the cycle, according to our estimates. BlackRock concludes that quality stocks are attractively valued and have historically outperformed other markets over the long-term, while improving portfolio resilience.
Bottom line: In a market that is emphasizing the importance of quality, VALQThis is a solid idea that investors should evaluate.
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