Exchange Traded Funds are a great tool, and every investor should use them. The number of ETFs available to investors has grown almost exponentially in the last few years. An ETF is traded like a stock, but can contain a basket of stocks, even the stocks in an entire sector or index. Much has been written about ETFs elsewhere, but the gist is that:
In researching ETFs and trying to determine how they may help you as a Value Investor, for example: if you have limited funds but want to be exposed to a portfolio of value stocks; if you don’t have the stomach or patience to seek out opportunities yourself; or even if you simply want to “ETF” a portion of your value portfolio — you can check out some of the “value ETFs”.
Yahoo! has a simple but useful ETF screener. We played around with it and came up with the following link: http://finance.yahoo.com/etf/browser/hl?k=10&c=etf_sv&f=0&cs=1&ce=7
Of particular interest to us at this point in time was RZV, Rydex ETF Trust ($36.60 as of close today, 07/24/2006). The average Market Cap of stocks in this ETF seems to be somewhat closer to the definition of Small Caps ($250M to $1 B). What caught our eye is the Portfolio Price/Cash Flow which is a shade under 5. We like this because a P/CFO under 5 is one of the criteria for one of our best-performing stock screens. The Earnings Growth of RZV is second-highest of this group of Small Value ETFs.
The only issue is there is not much history to this ETF — the chart only goes back to March this year. We could assume that it will likely mirror the other ETFs (the charts for the others which are longer-established are broadly similar over the long-term), and likely outperform them although it may be more volatile due to the lower market-caps.
The market is currently in the summer doldrums and may continue to vacillate till November, if history is any guide. Perhaps now may be a good time to begin accumulating some RZV to add more value diversification?
