Cyclical sectors help value ETFs take matters into their own hands

Value-style exchange-traded funds held up Tuesday as US markets scaled back early gains after manufacturing data revealed continued expansion amid rising commodity prices and supply-side setbacks.

The Institute for Supply Management (ISM) revealed that manufacturing activity in the United States increased in May as its domestic factory activity index rose to 61.2 last month from 60.7 in April, Reuters reports.

Improving manufacturing data has been attributed to pent-up demand amid the reopening of the economy, but a backlog of unfinished work has increased due to shortages of raw materials and labor.

“Markets are letting macro data point the way with lower treasury prices and higher yields after strong numbers this morning,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, adding that updates on oil supplies are rapidly dwindling, which will lead to higher oil prices, also acted as a catalyst.

“They are interpreting higher yields as a signal to sell tech holdings and buy cyclical companies in the energy, materials and financials sector, which they have done so far today,” Zaccarelli added.

Markets continue to juggle concerns over inflationary pressures, which weighed on equities through May.

“The market is relatively optimistic about rising inflationary pressures,” said Brian O’Reilly, head of market strategy for Mediolanum International Funds. the Wall Street newspaper. “It’s always a cash-driven stock market that sweeps away any bad news.”

Investors interested in a targeted approach to the value segment can turn to the American Century STOXX US Quality Value ETF (NYSEArca: VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield and cash flow yield, as well as a sustainable income score based on dividend yield, dividend growth and dividend coverage.

the American Century Focused Large Cap Value ETF (FLV) attempts to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks typically trade at lower prices than fundamental measures of value, such as earnings and book value of assets.

Finally, the Avantis US Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in small cap US companies and is designed to increase expected returns by focusing on companies that trade at what are thought to be low valuations with higher profitability ratios.

For more news, information and strategies, visit the Core Strategies channel.

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