This is the Value Investor podcast with Tracy Rinek, All Things Value All the Time. Welcome back value investors. So there's been a lot of developments in ETFs in recent years, even on the value side. So there's more actively managed products now, and there's some that used to be mutual funds, and now those mutual funds are rolling out basically the equivalent ETFs.
So that's giving people who just prefer the ETF type of style to be able to buy those funds. So I thought I'd take a look at what's going on in the value side of ETF, because I've done this show often on throughout the years. But as I said, there's a lot of kind of newer things going on, and there's some different ETFs now that you can buy that weren't available, even just a couple of years ago. So I wanted to talk about the actively managed products.
And so these are going to have slightly higher expense ratios and the like, because they're managed differently than just letting the computer do it. But one of the biggest and most popular of the actively managed are the Arc ETFs. And I'm sure most of you have probably heard of those by now. They're run by Cathie Wood, and there is no value ETF among the ones that she operates.
However, their flagship is the Arc Innovation ETF. It's ticker ARKK, and that's the one everybody's been diving into because it's up 177% in the last year. But I took a look at what it holds, and it's like PE price to sales, price to book ratios and all that, because Cathie Wood and her team do try to find companies that the market is kind of ignoring or that she thinks is undervalued in their industry and that kind of thing, even with a company like Tesla, which is the largest holding in Arc Innovation, it's now over 10% of the portfolio. Tesla, when she added it and made a big call on it, was basically kind of out of favor by Wall Street at the time.
So she took a lot of heat for her big call on Tesla, but has stayed with it all these years, and now it's obviously paying off. So there is kind of a value kind of mentality behind what she does with her ETFs. So I did want to take a look at it. So the Arc Innovation, there is no PE, maybe because a lot of them don't have one, so it would skew it.
So no PE ratio of price to sales is 10.4, so that's very high. A price to sales ratio of 10 is extremely high. Price to book is at 9.9, almost 10 for price to book as well. So shouldn't be surprised when you have Tesla, and there is the highest, or the largest holding Roku is number two.
It's at a little over almost 7% of the portfolio, CRISPR Therapeutics, Square and Teladoc are the remainder of the top five. And so as you can see, it's going to have higher valuations there. So should you be buying into the Arc ETFs? That's a whole other podcast that I intend to do.
But as a value investor, remember, there are no rules. Nobody says just as a value investor, you cannot buy growth stocks or ETFs or anything in the growth category. Of course you can. So it's something you're going to have to think about as a value investor.
But what about the value ETFs? What's out there for those that are trying to find more pure values? So I put together a list of some of the names that are outside of those that I've covered in the past except for one of them. Because I wanted to find ones that were narrower and more focused on value.
So there is always the option to buy the cheap expense ratio, big value ETFs, like the Vanguard small cap. I talked about that one in the past. It's VBR. It's the ticker.
I own it in my own personal portfolio and have owned it for many years. It's just like a basic holding, but it has hundreds of stocks. I think it's over 800 stocks are in that portfolio. So it's not very picky on what it's looking for.
And it's going to own some growth stocks in there as well because there are not 800 small cap value stocks out there. That's just the reality. So they're going to throw in some growth names too to get it big enough to be around that 800 level. So that's fine for like a basic holding.
But maybe you want something again more consolidated, actually trying to find the real value stocks and to keep it more manageable. So I'm just going to dive in with some of these names that I found on a list of some of the ones that are, let's just call them deeper value, I guess. And one of them, one of the ETFs is called the Deep Value ETF because they are truly looking for things that have the classic value fundamentals. And let's recall those are like PEs of under 15, price to book under three, price to sales, under one, they can get it, those kind of classic valuations.
So the first one, the first ETF is called the Alpha Architect US Quantitative Value ETF. ticker is Q-V-A-L. So all you have to remember is it's Alpha Architect. And this one owns 40 to 50 stocks.
And what it uses is a five-step quantitative rules-based mythology to identify undervalued US stocks with the potential for capital appreciation. And I know many of you kind of like these rule-based methods. I know if you use the Zacks rank, which is a rules, you know, kind of quantified method for finding stocks and ranking them, then this may be the type of thing that you would enjoy as well. So it's fully automated, which means there isn't a Cathie Wood sitting there deciding what goes into it.
They are using this Quant's computer-driven method to find the stocks. But it is finding cheap stocks. It's PEs at 12.3, price to book is at 2.6, price to sales is at 0.7, expense ratio is 0.49. So you can see it's almost half a percent that you are paying more to get access to basically this Quant model.
And it holds again 40 to 50 stocks. So that's pretty small. So that's what we want. We're trying to find, you know, pretty intense value stacks.
So over the last year, this fund was up 7.1% versus 17.5% for the S&P 500. So as we know, a lot of value stacks are still trailing. And this is trailing the S&P. Its top 10 holdings are 21% of the total of the entire ETF.
And I'm just going to read off some of the names. You may know some of them. And so this kind of gives you an idea of what it holds. So number one is Aerojet Rocket, Rocketdyne at 2.5%.
Vistra Corp is at 2.2 Dick's Sporting Goods is at 2.1. Next star Media is at 2.1 and Melina Healthcare is at 2.09. Humana and United Health Group, two other big health insurers are also in the top 10. So it gives you some idea there.
But since they're all around like 2%, it's kind of looks like it's somewhat equal waiting, holding these stocks in there. So some of you may like that as well, that it's not like a Tesla that's suddenly 10% of the entire portfolio. So that's Alpha Architect QVAL is the ticker. Okay, the second one is that Deep Value ETF that I mentioned and it's Round Hill Acquires Deep Value ETF.
Deep is the ticker DEEP. Now this one a little bit different because on its website they said that they switched over in October, I think it was, yes, October of 2020 they shifted to small cap and micro cap values in this one. So it's prior performance isn't really relevant because it switched over now. And so you're going to get the smalls and the micros with this one and that makes a big difference, right?
It says it can hold up to 100 holdings. Expense ratio is 0.8%. So quite a bit higher and keep that in mind because the higher you go with expense ratio, the more it eats into your return. And yes, even half a percent can eat into your return if you're going to own it over multiple years.
So keep that in mind. PE is 12.2, priced to book 1.2, priced to sales at 1. Financials is the largest group of 37%, then industrials at 32%. Information technology is 23% and the consumer discretionary is 6.8.
And some of the top 10 is ODP Corp, Renta Center, Atlantic Power, Atcor, and IDT Corp. And the GraphTech and Coppers are also in the top 10. So keep that in mind. Those are some of the names, but you may not even know many of these names because it's small in micro caps.
So it's going to make it pretty volatile, most likely. So the last year, this fund is down 1.5% versus the S&P up 17.5. But again, they switched kind of what their focus was on in October. And that's right when the small caps got hot.
So presumably over the last couple of months, this performance should have been a lot hotter given what the small caps have done after October, basically. They've been really hot to end 2020 and start 2021. So presumably the most recent performance is better on this fund. So remember that's the deep value ETF is easy to remember.
DEEP is the ticker. So switching over to the third one is iShares ETF and it's iShares focused value factor ETF. And the ticker is F as in Frank, O, V as in Victor, L, F O V L. And this one is also kind of interesting, but it focuses on large and mid caps with value characteristics.
So if you really still want those large and large kind of cap stocks, then maybe this is one to take a look at. PE is 15.2, price to book is 1.29, price to sales 1.1. And it's very heavily weighted in financial services, 54%. I guess we shouldn't be surprised with the large cap focus there.
Basic materials at 20% and energy is in there at 9.3%. Since there's no healthcare, but maybe surprise if there wasn't just a small percentage of healthcare at some point in there. But financial services, you're going to get a lot of that. I took a look at the top holdings, top 10 is 30% of this one.
It says there's only 37 stocks. So that's pretty focused as it says, focus value, right? And so the top 10, Olin is 4%. Core is 3.6, Penske, the auto retailer, 2.97.
Pinnacle financial is 2.97 as well, percent. And Westlake chemical 2.9%. Morgan Stanley saw some of the top 10 and steel dynamics also in the top 10. So that gives you kind of an idea of what's in this one.
Expense ratio is not as bad, 0.25%. So they're trying to keep it down there a little bit more lower. So this is a small fund, only 31 million in the market cap. So not many people trying to find the focus value here, apparently.
But ticker FOVL is a ticker. And then I'm going to wrap it up with the other one that I've talked about on prior shows, which is the Invesco Pure Value ETF. ticker R PV. This one holds 104 stocks right now, but they try to keep it right around 100.
This is also big in the financials, but all the value ETFs are going to be. Financials are 41%. This one has healthcare at almost 12% and energy again at 9%. So if you don't want to own any energy stacks because you don't believe in them and you want to get away from that sector, you really have to watch with these value ETFs because energy still is considered a value area and a lot of them.
If they're not actively managed like a Cathy Wood type of active management, they're going to own them in there if they're running just like basic screens. So this one is another one that owns it and it tracks the S&P 500 Pure Value Index, which they own, but you're getting the big caps here because it's S&P 500. So what are the top holdings in this one? Berkshire Hathaway is number one at 2.2%.
A NOM insurance, this is an insurance side, is 2.1%. Lincoln National is 1.8. Lumen Technologies is 1.7% and then Prudential Financial again. I know this is a different one.
Pinnacle Financial was the last one. Prudential Financial is in this one, 1.68%. NetLife, CVS, and Valero, which is a refiner, are all also in the top 10 on this one. PE is at 14.1, price to book is at little over one, price to sales is at 0.6%.
I didn't write down the expense ratio on this one. So let me see what it was looking up here on my computer because that is a vital thing as we've talked about in the past that we want to make sure that we're not overpaying for something that maybe is just computer generated versus actually getting someone like Kathy Wood who's picking the stocks and that's why we're willing to pay the higher expense ratio. So this one is 0.35%, which, again, isn't as awful as some of the others that are on this list that are much higher. And Kathy Wood's for that arc innovator is 0.75.
So that's what you're paying to get her expertise and her group of analysts. But this one, 0.35%, but this is all much higher than what you would pay if you just bought like a basic Vanguard ETF. Let me look up one of those other than like the Vanguard, just the one I mentioned earlier, the small cap ETF. Let's see what that one is.
It's really low. 0.07% is the VBR expense ratio. So you can see the difference. And again, you might think, it's not a big deal, 0.25%, 0.35%, 0.8%.
That's not that big a deal. Everything's booming. It's up, up, up. You know, I can pay that, but it really does it head up over time.
So keep that in mind if you are trying to buy these to hold them as like a cornerstone of your portfolio for years, decades, maybe even that expense ratio can add up. And ask yourself, what am I getting for that expense ratio on some of these that are trying to follow these other like indexes or the ones that are computer generated? Yeah, I'm paying for that computer generated method. And that might be worth it.
It may also not be worth it. So that's why I wanted to find some that are like more actively managed and more akin to like the arc because I am willing to pay more for active managers. But it looks like I'm going to have to maybe try to dig around and see what other form of mutual funds are switching over to ETFs on the value side or maybe we have to wait for arc to launch a value ETF. Could they launch a value?
I don't know. That's a good question. Right now, they've only announced recently that they're going to be launching a space ETF. Maybe they don't see any innovation in value companies or they're just not into the value area as we are.
But that would be a big thing if one of these bigger managers launched into a value ETF. Then we know we were back in favor, right? Yes, we would. Another thing is you can kind of look at these ETFs and you can get ideas for what stocks are values out there and what is trading in each of these because you can find the list of their holdings at least the top 10 and arcs put out their entire list all the time and what trades they're making every week.
So you can kind of see what's going on and what some of these funds are buying and where you can find the value. But as I've said, buying the ETFs gives you access to much more diversity and that's why I like them and that's why I own a couple of them in my own portfolios because I don't have the capability of buying 50 or 100 value stocks or I have a permit 800 of them. So it does give you exposure to the value area a much easier way through these ETFs than you can do on your own. Again, a good way to find some stocks.
And as I was preparing for this podcast, I kind of started wondering about actually Berkshire Hathaway which showed up in that pure value ETF, right? That was where it was at because that's almost kind of like buying into the management of Warren Buffett and his lieutenants, right? And so maybe buying into Berkshire Hathaway gets you access to a great managers as well. But that's another podcast for another time too.
Should you buy Berkshire Hathaway? That's a good question. But wrapping it up, there's some good ETF ideas here. So take a look at them.
You each have your own goals and investment criteria and maybe none of these will work or maybe just one will work or maybe you do want the broader types of indexes that are cheaper and not these more focused. But it's worth taking a look at to see what these more deeper value, more focused, more intense value type of ETFs are doing because again, there's been a lot of innovation and developments in the ETF space and hopefully we as value investors are going to get access to some of that as well. So let me recap some of the tickers here. We had the ARK innovators and that's ARKK.
We had the alpha architects. That's QVAL. The Round Hill Deep Value ETF is DEEP. Then we had I'm switching my pages here.
I share focus value FOVL. Then we had the, yes, then we had investment, investment pure value ETF RPPV. Then I also mentioned the Vanguard Small Cap Value ETF VBR. Is that ticker?
So keep all this in mind and I'm going to keep covering. I have a lot of great ideas coming up for value investor podcasts. So there's going to be our usual more screens to find those value stocks as we had deeper into the year here and this rally continues. It's getting harder to find some value stocks, but they are out there.
So I'm going to be deploying our screens to find some interesting value plays in the next couple of weeks and to cover some of these other topics that are pertinent out there for value investors. So be sure to get us on Spotify or Apple Podcast or anywhere else. We're on Amazon Music now. You can get us there, but get us somewhere and I'll see you again next week with some more value stocks.
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