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Ryan Jackson: Legendary economist John Maynard Keynes once said that “it’s better for reputation to fail conventionally than to succeed unconventionally.” In other words, there’s little reputational reward for going against the grain.
Investing rewards are a different story. Some of the best investors are contrarians that uncover value by zigging while the rest of the competition zags. Today, let’s explore three great ETFs and the merits of doing what feels uncomfortable.
3 Great Contrarian ETFs
FTSE RAFI US 1000 ETF PRFShares Core S&P Value ETF IUSVPimco Enhanced Short Maturity Active ETF MINT
Let’s start with a strategy that truly embodies the contrarian spirit: Invesco FTSE RAFI US 1000 ETF. It trades under the ticker PRF and sports a Morningstar Medalist Rating of Silver.
This fund spans the 1,000 largest US stocks and weights them by a blend of their fundamentals. That breaks the link between stock prices and weight. So, when the fund rebalances, it effectively doubles down on falling stocks and reduces exposure to those on the rise. Leaning into beaten-down stocks and trimming the ones in vogue makes this a bona fide contrarian strategy that exemplifies the buy-low/sell-high philosophy.
Investors must be patient to reap the rewards this strategy has to offer because its performance comes in bursts. But its long-term track record is sound. PRF gained 9.9% per year from its December 2005 inception through September 2024, about 1.7 percentage points ahead of its large-value category index.
And for contrarian investors that already have US large-cap exposure, Invesco packages this strategy in international and small-cap ETFs, too. Their tickers are PXF [Invesco FTSE RAFI Developed Markets ex-U.S. ETF] and PRFZ [Invesco FTSE RAFI US 1500 Small-Mid ETF], respectively.
Next up is iShares Core S&P Value ETF, ticker IUSV. It earns a Silver Medalist Rating for its sensible approach, diversification, and low fee.
This fund tracks the S&P 900 Value Index, which pulls in the cheaper half of the US large- and mid-cap market and weights them by market capitalization. Market-cap-weighting allows this fund to cheaply tap into the market’s collective expertise, and a broad reach keeps stock- and sector-specific risks at bay.
Selecting stocks by their value traits gives this fund its contrarian tint. It favors stocks with low price-multiple ratios and slower momentum, characteristics of companies that the broader market overlooks. The fund’s sector composition illustrates its contrarian posture best. Compared to the broad market, it is well underweight technology and heavy on financials, healthcare, and energy stocks, among others.
The fund has generated solid results, ranking among the top 25% of large-value peers since it started tracking its index in January 2017.
Pimco Enhanced Short Maturity Active ETF, ticker MINT, is not a contrarian strategy. But investing in the Gold-rated fund today would be somewhat of a buy-low decision.
This fund has a stellar long-term track record but has wavered of late. It ranked in the bottom third of its Morningstar Category over the one-, three-, and five-year periods entering October 2024.
But there is plenty of reason to believe this fund will rebound. Led by Jerome Schneider, the team that runs it is deep and its skill set complementary. Drawing on Pimco’s extensive group of analysts, traders, macro experts, and risk managers adds to the team’s appeal. Plus, the strategy that the team plies earns a High rating for its flexibility and ability to deftly navigate the nuances of the cash and derivative markets.
This fund is as good as they come in the ultrashort bond category. It’s a good candidate to return to its winning ways soon.
Watch 3 Great ETFs That Offer Broad Diversification for more from Ryan Jackson.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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