SPYV: A Big Sharpe Ratio YTD, Expecting The Blue-Chip Rally To Continue (NYSEARCA:SPYV)

The value factor has performed generally well this year amid a momentum-driven market. Each weekend, I peruse the Goldman Sachs US Kickstart report. The latest edition reveals that tech-related stocks, particularly those in the Communication Services sector, have been the leaders, but on a risk-adjusted basis, its cyclical areas like Financials and Industrials leading the way. What’s more, the MSCI Developed Markets index, with relatively high weights in value sectors, has done well.

I am upgrading the SPDR Portfolio S&P 500 Value ETF (NYSEARCA:SPYV) from a hold to a buy. Back in August last year, I had a tactical hold rating given my expectation for a continued dip in stocks heading into the often-volatile September and October months. That played out, and I’ve noted my optimism on value equities since late last year. As the second quarter of 2024 begins, I continue to feel good about economically sensitive equities.

Value Sectors Post Strong Sharpe Ratios YTD

According to SSGA Funds, SPYV offers investors access to undervalued S&P 500 companies compared to the broader market. The underlying index, the S&P 500 Value Index, gauges the performance of large-cap value stocks in the U.S. equity market. The index includes stocks from the S&P 500 that display strong value characteristics, such as favorable book value-to-price ratios, earnings-to-price ratios, and sales-to-price ratios. The index’s composition is weighted based on the market capitalization of its constituents.

SPYV is a large ETF with more than $21 billion in assets under management as of March 22, 2024. The fund sports a strong A- share-price momentum grade by Seeking Alpha’s ETF system and has a low 0.04% annual expense ratio, making it ideal for long-term investors.

Its yield is just 0.4 percentage point above that of the S&P 500. The risk rating is robust while SPYV’s liquidity grade is attractive. Average daily volume is just shy of 3 million shares while its 30-day median bid/ask spread is tight at only two basis points, per the issuer.

SPYV occasionally catches some flak for its growth holdings, but the 5-star, Silver-rated ETF by Morningstar currently has just 10% in the growth style. Back at the bear market lows in late 2022 and early 2023, some high-tech companies were actually placed into the S&P 500 Value Index due to their low valuation multiples. That turned out to be a good thing as shares of said companies soared last year.

Today, there remains a significant exposure to “blend” stocks, so SPYV is by no means a “pure value” ETF. Still, its price-to-earnings ratio is nearly five turns cheaper than the S&P 500 Index while its long-term earnings growth rate is stout at almost 9%.

SPYV: Portfolio & Factor Profiles

What I like about SPYV and some of its value-style ETF peers is that there’s ample sector diversification. While the SPX is nearly 30% weighted to tech and the so-called “S&P 500 Expanded Tech” group is more than 40%, per WisdomTree, Financials, Health Care, and Industrials command the greatest presence in SPYV.

I am not overly bearish on the Information Technology sector and its techy peers, but high investor sentiment and stretched valuations are concerns. For SPYV, the portfolio is also less concentrated with the top 10 assets comprising just 19% of the allocation.

SPYV: Holdings & Dividend Information

Seasonally, SPYV tends to perform well through the second quarter and into July. The perilous stretch has historically been the August through mid-October period. So, there are favorable near-term seasonal tailwinds at play.

SPYV: Bullish April-July Trends

The Technical Take

With a healthy performance so far this year, low valuation, diversified portfolio, and favorable seasonal conditions, SPYV’s chart is doing the right things. Notice in the graph below that shares have been on an absolute tear since notching a low in October 2023. The ETF is up close to 25% in the past five months, making new all-time highs along the way. What is also appealing in my view is that the RSI momentum gauge at the top of the chart has been ranging in the bullish 40 to 90 zone – you can learn more about how to properly use RSI here.

SPYV faked out investors last summer. A bearish false breakout took place in July, and I noted weakening RSI momentum in my analysis back then. Expecting a pullback, I recommended getting long SPYV on a dip to $41. That played out well with SPYV dipping under its long-term 200-day moving average last year before zooming higher. Going forward, I see support in the $45 to $46 range and there could be some possible selling pressure around $52 based on the bottoming pattern from 2022 and 2023. That range height was $9, and if we add that on top of the $43 breakout point, then $52 is a potential price target.

Overall, SPYV is in a strong uptrend confirmed by RSI while its long-term 200dma is rising.

SPYV: Powerful Uptrend, New All-Time Highs, RSI Confirms the Rally

The Bottom Line

I am upgrading SPYV from a hold to a buy. My previous hold rating was based on a tactical play that came to fruition in the back half of 2023. With bullish fundamentals and technicals, I see intermediate-term and long-term upside in SPYV.