Value investing has proven to be one of the most successful investing strategies over the long-term. Legendary investors, including Warren Buffett, have used the value approach to generate outstanding returns over time.

In recent years, however, value stocks have drastically trailed growth stocks as low interest rates propelled the valuations of fast-growing companies. From 2011 to 2020, large value funds underperformed large growth funds by more than 5 percentage points each year, according to Morningstar. In 2020, the gap was an astounding 32.2 percent.

But as the Federal Reserve raises interest rates to combat high inflation, some investors think value stocks will outperform their growth counterparts over the coming year. In a recent Bankrate survey, 36 percent of the analysts expected value stocks to outperform growth stocks over the next 12 months.

Value has already started to outperform, with the Russell 1000 Growth Index falling by more than 26 percent in 2022 through November 29, compared to only a 5.7 percent decline for the Russell 1000 Value Index.

What is value investing?

Value investing can mean different things to different people. In broad terms, it is the act of getting more than you’re paying for in an investment. Growth, of course, is an important component of a company’s value to shareholders, and growing companies can certainly represent good value, depending on the price they can be purchased for.

The professional investing world has divided the fund universe into different categories, such as value and growth funds. This segmentation requires a more quantitative definition of value and growth. Value funds tend to hold companies with lower price-to-book and price-to-earnings ratios than those of a broad index. They also tend to come with higher dividend yields and lower expected earnings growth in the future.

Here are some of the top value ETFs to consider for your portfolio. (Data as of Nov. 29, 2022.)

Top value ETFs

Vanguard Value ETF (VTV)

The Vanguard Value ETF seeks to track the performance of the CRSP U.S. Large Cap Value Index, which measures the returns of large-cap value stocks. The fund holds about 340 different stocks.

5-year returns (annualized): 9.4 percent
Expense ratio: 0.04 percent
Assets under management: $102.0 billion
Top holdings: Berkshire Hathaway (BRK.B), UnitedHealth Group (UNH), Johnson & Johnson (JNJ) and JPMorgan Chase (JPM)
Dividend yield: 2.5 percent

iShares Russell 1000 Value ETF (IWD)

IWD seeks to track the performance of the Russell 1000 Value Index, which includes large- and mid-cap U.S. stocks that have value characteristics. The fund gives investors exposure to companies that are thought to be undervalued relative to comparable businesses.

5-year returns (annualized): 7.4 percent
Expense ratio: 0.18 percent
Assets under management: $54.6 billion
Top holdings: Berkshire Hathaway (BRK.B), Johnson & Johnson (JNJ), Walmart (WMT) and JPMorgan Chase (JPM)
Dividend yield: 2.0 percent

Vanguard Small-Cap Value ETF (VBR)

The Vanguard Small-Cap Value ETF seeks to track the performance of the CRSP U.S. Small Cap Value Index, which measures the returns of small-cap value stocks. The fund holds nearly 900 stocks and has 6 percent of its assets in the top 10 holdings.

5-year returns (annualized): 6.8 percent
Expense ratio: 0.07 percent
Assets under management: $24.8 billion
Top holdings: IDEX (IEX), Steel Dynamics (STLD), Bunge (BG) and Atmos Energy (ATO)
Dividend yield: 2.1 percent

Vanguard Mid-Cap Value ETF (VOE)

VOE seeks to track the performance of the CRSP U.S. Mid Cap Value Index, which measures the returns of mid-cap value stocks. The fund’s holdings generally fall in between small- and large-cap stocks. The fund holds about 200 stocks and has 12 percent of the fund invested in the top 10 holdings.

5-year returns (annualized): 7.4 percent
Expense ratio: 0.07 percent
Assets under management: $16.5 billion
Top holdings: Carrier Global (CARR), Centene Corp. (CNC), Corteva (CTVA) and Nucor Corp. (NUE)
Dividend yield: 2.3 percent

Fidelity High Dividend ETF (FDVV)

The Fidelity High Dividend ETF invests in stock of large- and mid-cap companies that are expected to pay and grow dividends into the future. The fund holds more than 100 stocks.

5-year returns (annualized): 10.4 percent
Expense ratio: 0.29 percent
Assets under management: $1.3 billion
Top holdings: Apple (AAPL), Microsoft (MSFT), Chevron (CVX) and Exxon Mobil (XOM)
Dividend yield: 3.4 percent

SPDR Russell 1000 Yield Focus ETF (ONEY)

ONEY seeks to provide investment results that generally track the performance of the Russell 1000 Yield Focused Factor Index. The fund hopes to collect above-average dividend payments to increase total returns.

5-year returns (annualized): 10.7 percent
Expense ratio: 0.20 percent
Assets under management: $904.5 million
Top holdings: HP Inc. (HPQ), Gilead Sciences (GILD), Phillips 66 (PSX) and Walgreens Boots Alliance (WBA)
Dividend yield: 3.2 percent

Bottom line

Investing in value ETFs gives investors an easy way to invest in stocks thought to be undervalued by the market. By owning a basket of these stocks through an ETF, you can avoid the heavy research that is usually required to buy individual stocks. You’ll also get the benefits of diversification by owning stocks across different industries that generally trade for below-average multiples of earnings and assets.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.