A specific exchange-traded fund (ETF), not widely recognized, has significantly surpassed the returns of the leading value fund this year. This lesser-known fund leverages an algorithmic approach for stock selection, entirely eliminating human bias from the investment process. However, its performance over the past decade presents a more nuanced picture.
Quantitative value investing fundamentally removes subjective human judgment from the stock-picking equation. This strategy utilizes a model that consistently applies specific criteria to every U.S. stock: ranking them by price, filtering out underperforming businesses, and then acquiring the remaining securities. Bloomberg characterizes QVAL's methodology as a comprehensive, rule-based quantitative framework designed to pinpoint approximately 50 to 100 undervalued U.S. equity holdings. The fund aims to identify the most attractively priced stocks and employs an EBIT/TEV screening method, which assesses a company's operating profit relative to the total cost of acquiring the entire business, including its liabilities. This process also incorporates quality checks to mitigate investments in 'value traps' – stocks that appear cheap because the underlying business is in distress.
The outcome is a focused portfolio with an almost equal weighting for each holding. Recent disclosures indicate that the 50 stock positions typically constitute between 1.84% and 2.14% of the net assets. For instance, Comcast represented 2.14%, followed by CF Industries at 2.07%, and Altria at 1.98%. This contrasts with traditional value funds like VTV, which track indices weighted by company size, meaning larger corporations hold more influence. QVAL's approach of assigning similar weight to each selection implies that a mid-sized retailer holds comparable significance to a major telecommunications firm within the portfolio. This strategic difference, along with varying sector exposures (QVAL heavily leans into energy and materials), contributes to minimal overlap with benchmark indices and aims for potentially higher returns, albeit with increased tracking error. While VTV boasts a remarkably low annual fee of 0.03%, QVAL, being actively managed, incurs a higher expense ratio compared to its index-based counterparts.
Considering the decade-long performance, QVAL's 240.1% return still lags behind VTV's 245.07%, despite its impressive gains in 2026. This suggests that while QVAL has shown recent strength, there have been extended periods where it underperformed the more cost-effective index fund. The fund's concentrated nature also leads to greater volatility; for example, QVAL experienced a more significant decline on November 3rd compared to VTV. Its substantial exposure to economically sensitive sectors, such as energy, means that downturns in oil prices or economic anxieties can impact QVAL more severely than broader value indices. Several factors contribute to QVAL's relatively low profile: it is managed by a smaller firm without extensive brokerage support, its fees appear high when compared to VTV's near-zero cost, its deep-value strategy underperformed for years during a growth-led market, and its portfolio deviates significantly from standard benchmarks, making it challenging for financial advisors to convey to clients. Investors approaching retirement might find QVAL's focused and higher-tracking-error design appealing as a supplement to existing broad holdings, offering a disciplined, objective approach to value investing. However, it demands considerable patience to weather potential periods of underperformance. VTV, with its broad market exposure and low cost, offers a more consistent and predictable investment. Those considering QVAL should regularly review its holdings after rebalancing, monitor energy prices due to its significant oil and gas allocation, and observe whether value leadership persists into the coming year, as these factors will largely determine its future success.
