With inflation on the rise and interest rates on their way up, one interesting strategy to combat these conditions, is to choose companies that have low Price to Earnings Ratios. From Investopedia, The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
In times of inflation, generally Banks and Energy have done well. We have already seen the move in Energy YTD, and we are still waiting on the move in the Banks, generally both of these types of investments have low P/E ratios. Conversely, in this same environment with interest rates on the rise, it makes sense that highly indebted companies do poorly. The worst companies to invest in when rates rise are the ones that have the most debt. With that said, it could be a good strategy to look at ETFs with low P/E ratios. Here are a few to take a look at.
(VSS) Vanguard FTSE All-World ex-US Small-Cap ETF – P/E 6.0
The Fund tracks the performance of the FTSE Global Small Cap ex US Index and is passively managed, using index sampling and offers a low expense rate of .07%. The funds top 5 holdings are, WSP Global Inc., First Quantum Minerals Ltd., Open Text Corp., Emera Inc. and Kirkland Lake Gold Ltd. YTD the fund has not performed well, but in line with the overall market, down 12.06%. The fund does offer a dividend of 3.10%.
(DWAS) Invesco DWA SmallCap Momentum ETF – P/E 6.0
The Invesco DWA SmallCap Momentum ETF (Fund) is based on the Dorsey Wright® SmallCap Technical Leaders Index (Index). The Fund will normally invest at least 90% of its total assets in equity securities of small capitalization companies that comprise the Index. The Fund offers an expense rate of .60%. The Funds top 5 holdings are , LSB Industries Inc, Weatherford International, SM Energy Co, Casella Waste Systems Inc and Ameresco Inc. YTD the fund is down 9% and does yields a small dividend of .17%
(FGD) First Trust Dow Jones Global Select Dividend Index Fund – P/E 7.80
The objective of the Fund is to seek investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the Dow Jones Global Select Dividend Index. The Fund offers an expense rate of .57%. The top 5 holdings of the fund are, Labrador Iron Ore Royalty Corp., Enagas S.A, British American Tobacco Plc, Woori Financial Group Inc., and Telefonica, S.A. YTD the fund has outperformed the SP 500, down 3.63%. The fund does offer a dividend of 5.51%.