PWV: Right Time, Right Place, Right Sector Mix (NYSEARCA:PWV)

I think we’re on the cusp of a big style shift whereby growth underperforms value. The relationship between these two approaches to investing is stretched, with Tech as the quintessential growth sector broadly vulnerable against other parts of the marketplace that have nowhere near been as strong. If you believe value is likely to do better going forward, then you may want to consider the Invesco Large Cap Value ETF (NYSEARCA:PWV). This is an exchange-traded fund, or ETF, that gives investors exposure to approximately 50 large-cap US stocks with value-oriented characteristics.

The ETF attempts to track a particular index: the large-cap value Dynamic Large Cap Value Intellidex Index, which attempts to provide capital appreciation with a consistent value investing style. The way that it does this is by using a 10-factor style purity methodology to objectively sort companies into their appropriate investment style and size universe.

A Look At The Holdings

Right off the bat, we can tell just how different the top 10 positions are from what you see in core averages like the S&P 500 and growth portfolios. No position makes up more than 3.58% of the fund.

What do these companies do? AbbVie (ABBV) is a global biopharmaceutical company whose Humira, an anti-inflammatory for rheumatoid arthritis and other autoimmune ailments, remains the world’s top-selling medication. Verizon Communications (VZ) is one of the largest telecommunications companies in the US, providing wireless and wireline communications to consumers and businesses. Amgen (AMGN) is a biotechnology company involved in pharmaceutical research and development, manufacturing, and sale of human therapeutics in fields spanning oncology, nephrology, and inflammatory diseases. Cisco Systems (CSCO) is a multinational technology conglomerate which designs, manufactures and sells networking equipment, software and services. And International Business Machines (IBM) is a multinational technology firm specializing in computer hardware and software, and cloud-computing and artificial-intelligence services.

Sector Composition and Weightings

The key difference between value portfolios and growth ones is sector composition. Notice that Financials make up the largest allocation here at 28.09%, more than triple the Tech exposure which dominates growth portfolios.

I like the Health Care and Energy allocations here, as I suspect those sectors should get some better momentum ahead, given how much they’ve lagged the last two years.

Peer Comparison

There are plenty of value funds out there. One worth comparing this against is the iShares Russell 1000 Value ETF (IWD), which aims to match the Russell 1000 Value Index. When we look at the price ratio of PWV to IWD, we find that the methodology of PWV clearly has worked, as it has outperformed sizably since 2021.

Pros and Cons

On the positive side? The selection process is rules-based. I like that as it provides consistency and allows for rebalancing based on the outputs. I also like the sector allocations, with Tech being de-emphasized overall. And the performance backs up the case for the fund relative to other value funds out there. The Utilities exposure combined with Health Care in the top 3 following Financials is unique in my view and actually quite favorable given how badly those sectors have lagged recently.

The downside? Value investing strategies can languish for years if markets enjoy long rallies or when investors favor growth stocks, as they have in this cycle. In addition, it’s worth noting that a concentrated portfolio (which I would argue at 50 holdings is on the edge of) can be more volatile than most realize. Not as big of a concern, but still important to keep in the back of your mind. Finally, sector biases, such as overweights to energy and financials, could create significant swings in value if there was market stress or the government limited what they could be involved in.

Conclusion

For investors who want exposure to large-cap value stocks with a quantitative approach, and are willing to incur higher active risk, Invesco Large Cap Value ETF could be a compelling choice. I think the broader tailwind is either here or just about to start for value investing, and the methodology used in PWV looks like it could really take advantage of what’s to come. This is a fund worth considering.

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