A recent report has highlighted the broader economic conditions that are signalling we might be back in a value market.
Value investing is an investment philosophy built on the belief that markets are not always efficient in the short term. However they tend to recognise true worth over time.
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Why chase value?
At its core, value investing involves identifying companies whose shares are trading below what they are actually worth based on their underlying financial performance, assets, and long-term earning potential.
This "true worth" is known as intrinsic value.
Rather than chasing trends or momentum, value investors deliberately look for situations where the market has overreacted. This can drive a stock price down below what the business fundamentals justify.
These mispricings are treated as opportunities rather than risks.
The strategy is then to hold these undervalued assets patiently, waiting for the gap between market price and intrinsic value to close. When that happens, the share price "corrects" upward, and the investor realises a gain.
In essence, value investing is less about predicting the next market move and more about buying solid businesses at discounted prices and allowing time for market perception to catch up with economic reality.
Why value investing is back
There are several signs that suggest we may be in the early stages of a value-driven market environment.
Inflation could remain elevated due to geopolitical tensions and high global debt, with oil prices still significantly above levels from six months ago. Historically, rising commodity prices have often signalled sustained inflation.
At the same time, value equities look relatively attractive, trading near long-term averages and at multi-year lows versus broader global equities, suggesting room for upside if conditions continue to support value.
Three ASX ETFs to target value
With these factors pointing towards a value market, there are several ASX ETFs investors may choose to target.
Firstly, the BetaShares Ftse Rafi Australia 200 ETF (ASX: QOZ).
This fund tracks the ASX 200, however they are measured by fundamental size rather than market cap.
This helps tilt the fund toward cheaper Australian companies based on sales, cash flow, dividends, and book value. It could be a strong fit if you want Australian large-cap value exposure.
Turning our attention to international options, another fund to consider is Vanguard Global Value Equity Active ETF (ASX: VVLU).
This fund seeks to provide long term capital appreciation through an active management approach that invests in global equity securities demonstrating value characteristics.
Finally, investors could also consider the VanEck MSCI International Value ETF (ASX: VLUE).
It offers a portfolio of 250 international developed market large and mid-cap companies, with high value scores.
