While HQUS is primarily a play on broadening participation within the US market, VVLU is a play on a rotation towards cheaper companies globally, providing exposure to a diversified portfolio of around 1,000 international companies selected using a quantitative value strategy. Rather than allocating capital based on company size, as traditional market-cap-weighted indices do, VVLU favours stocks trading at attractive valuations relative to their earnings, book values and cash flows.
The strategy is particularly relevant given the significant valuation gap that has developed between the US mega-cap technology giants and the broader global equity market. After years of investors rewarding companies with strong earnings growth and predictable cash flows, many more economically sensitive stocks have been left behind, despite continuing to generate healthy profits. VVLU provides exposure to these relatively inexpensive companies across sectors such as financials, industrials, healthcare and energy, offering a different source of returns from the growth-heavy S&P 500.
Importantly, VVLU is a global strategy rather than an ex-US fund, meaning it still invests in American companies, alongside stocks in Europe, Japan and other developed markets. This provides both geographic diversification and a tilt towards value stocks, reducing reliance on the handful of US technology companies that have dominated market performance. The fund charges a management fee of 0.28% p.a., which we think is reasonable for a diversified, quantitatively managed strategy.
We believe the opportunity is particularly interesting if US bond yields have peaked and market leadership begins to broaden. While value stocks don’t necessarily require falling yields to outperform, a more balanced economic environment, where earnings growth extends beyond mega-cap technology, would be supportive.
- VVLU offers an attractive way to diversify away from the increasingly concentrated US technology trade, without abandoning global equities.
