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ETF Specialist

An ETF Where Value and Investment Merit Meet

While its complexity should give investors pause, this ETF attempts to improve on the traditional passive approach to value investing.

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Unlike most value index funds,  PowerShares Dynamic Large Cap Value (PWV) screens for stocks on investment merit in addition to traditional value characteristics. This approach more closely resembles an active strategy than a passive strategy, as do its fees (0.59% expense ratio). But despite its high expense ratio, this fund has outperformed most of its large-value peers since its inception in March 2005. PWV may be a suitable core holding for intrepid investors who wish to adopt a complex approach to value for a chance to outperform traditional value index funds.

While value stocks tend to outperform over the long run, they often represent companies with relatively high business risk and poor prospects for growth, and they may remain out-of-favor for years. PWV attempts to improve risk-adjusted returns by evaluating stocks that pass its initial value screens along the following five dimensions: price momentum, earnings momentum, quality (for example, return on equity, asset turnover, profit margins), management action (change in capital expenditures, share buybacks), and value.

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Alex Bryan has a position in the following securities mentioned above: VBR. Find out about Morningstar’s editorial policies.