Beginner Investors: How to Invest in Global Value Stocks With ETFs

ETFs can be a great way of gaining diversified exposure to value stocks from around the world.

| More on:
exchange traded funds

Image source: Getty Images

Value investors attempt to find companies trading at share prices lower than what their fundamentals would entail. Their goal is to buy undervalued stocks before Mr. Market wakes up and prices them higher. If they succeed, value investors can turn a tidy profit.

Some of the greatest investors in history were value investors, like Warren Buffett. If you’re interested in emulating Buffett and picking some potentially undervalued stocks, you can find some excellent Canadian value stock picks from the other Foolish writers.

However, I’m a passive investor, and only invest using exchange-traded funds, or ETFs. Beginner investors can use a value ETF as the core of their portfolios to create immediate diversification and add individual stock picks to it later. Let’s go over my favourite globally diversified value ETF today.

How does a global value ETF work?

An ETF is a fund that can hold a basket of stocks and trades on a stock exchange. When investors buy a share of an ETF, they gain exposure to all of its underlying assets.

A value ETF is simply a fund that holds a portfolio of value stocks according to a preset rule (if it’s passive) or the manager’s discretion (if it’s active).

Either way, the point of a value ETF is to ensure exposure to stocks with value characteristics. Value ETFs often screen for metrics like low price-to-book, price-to-sales, or price-to-earnings ratios.

The good ones also include a profitability and earnings screen to sift out companies that are undervalued because they are in fact doing poorly (“value traps”).

Value ETFs can cover value stocks from all markets, not just the TSX. Investors can choose to diversify their portfolios and invest in Canadian, U.S., international developed, and international emerging stocks.

My global value ETF pick

I’m a fan of the Vanguard Global Value Factor ETF (TSX:VVL). This fund uses a quantitative rules-based model to pick stocks that have have lower prices relative to their fundamental measures of value, which include price-to-book and price-to-earnings ratios, estimated future earnings, and operating cash flow.

VVL is highly diversified, holding 983 large-, mid-, and small-cap stocks from North America (70.7%), Europe (16.9%), the Pacific (11.7%) and the Middle East (0.7%). Essentially, it covers most of the world’s investable stock market. The largest sector represented is financials (24.2%).

Compared to the similar Vanguard All-Equity ETF (TSX:VEQT), VVL does look undervalued. VVL has lower price-to-earnings and price-to-book ratios of 7.0 and 1.0, respectively, compared to VEQT at 12.1 and 1.7. This means the stocks in VVL trade at less expensive valuations on average.

In terms of fees, VVL costs a management expense ratio (MER) of 0.38%. This is the annual percentage fee deducted from your total investment over time. For a $10,000 investment, a MER of 0.38% works out to around $38 in annual fees, making VVL cheap compared to most mutual funds.

The Foolish takeaway

VVL could be a great way to hold a portfolio of global value stocks with zero effort. Using VVL as the “core” of a value portfolio is a great way of gaining maximum diversification. However, remember that value investing is a long-term endeavour. There have been times when growth stocks outperformed value strongly. Staying the course and not chasing performance is the key to success.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Stocks for Beginners

A stock price graph showing growth over time
Stocks for Beginners

3 Undervalued Stocks to Triple Your Portfolio

These three undervalued stocks are the perfect choice for those looking for stable but strong growth in the next few…

Read more »

clock time
Stocks for Beginners

Brookfield Asset Management (TSX:BAM.A) Stock Is Down 20%: Time to Buy?

Brookfield Asset Management (TSX:BAM.A) has fallen 20% this year. Is now the time to pick up this top Canadian stock?

Read more »

money cash dividends
Dividend Stocks

Canadian Investors: Where to Put $100 Right Now

Canadians with $100 to invest can put their money to work in three low-priced, dividend-paying TSX stocks.

Read more »

Dice engraved with the words buy and sell
Dividend Stocks

Not Every Cheap Stock has Value: 1 Stock to Buy, 1 to Sell, and 1 to Hold

The market downturn has created an opportunity to buy value stocks at a bargain. Here’s a guide to optimizing your…

Read more »

Credit card, online shopping, retail
Stocks for Beginners

Need Cash? Get a New Credit Card

Canadians can create some savings by simply finding a new credit card that offers more perks and bonuses, and use…

Read more »

stock data
Stocks for Beginners

New to Investing? Here’s Why Dividend Stocks Are the Best to Buy Now

As the economy continues to worsen and interest rates move higher, here's why these two dividend stocks are some of…

Read more »

value for money
Stocks for Beginners

3 TSX Stocks That Are Fantastic Deals Right Now

Bear markets are the perfect time for long-term TSX investors to load up on high-quality stocks at bargain prices. Here…

Read more »

The sun sets behind a high voltage telecom tower.
Stocks for Beginners

3 Top Stocks for Beginner Investors

A well-diversified portfolio for beginner investors should consist of top stocks that provide income, safety, and growth.

Read more »