The iShares Russell 1000 Value Index Fund (IWD) is an exchange traded fund that invests in about 700 stocks from the Russell 1000 Index. The ETF is a cost-effective way to own some of the largest U.S. companies in one shot, while taking a value-based approach.
"Over time, value stocks have provided better risk-adjusted returns than the market, as investors' perceptions about these companies' dim business prospects is often largely reflected in their stock prices. These depressed valuations can provide a margin of safety and significant upside if these companies exceed expectations, which are low to begin with," Alex Bryan wrote for Morningtar.
"Russell uses three valuation measures - the ratio of price to book value, the two-year earnings-growth forecast and the previous five years' growth in sales per share-to rank all the stocks in the Russell 1000. The lower the price-to-book ratio and the slower the growth, the more likely a company is to fall into the value camp," Anjelica Tan wrote for Kiplinger.
This ETF replicates the value side of the Russell 1000, so it holds stocks with similar weights as the index, Rene Casis, iShares ETF manager explained. IWD tracks an index that has the highest weights to financials, energy and healthcare. Procter & Gamble (PG), Wells Fargo (WFC) and Berkshire Hathaway (BRK.B) are some of heaviest weighted companies. IWD is a good diversifier for those investors who own growth stocks or funds, but for those who own broad-based U.S. large-cap funds, over-allocation can occur. IWD charges about 0.20%.
IWD is different from other large-cap ETFs because it holds more stocks and touches upon the mid-cap asset class, reports Michael Rawson for Morningstar. The fund has underperformed since the tech bubble burst, as the Russell growth index held up better than the value index through the financial crisis because of less weighting in the financial sector.
Other similar value-tilted ETFs:
- Vanguard Value ETF (VTV) expense ratio 0.10%
- Schwab US Large-Cap Value ETF (SCHV) expense ratio 0.7%
- WisdomTree Large-Cap Dividend (DLN) expense ratio 0.28%
iShares Russell 1000 Value Index Fund
Tisha Guerrero contributed to this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.