4 Top-Rated ETFs Available at Discount Prices

# **Compelling ETFs Trading at Significant Discounts: Morningstar Review**

In this video, Morningstar explores a selection of exchange-traded funds (ETFs) that are currently trading well below their fair value estimates. The Morningstar price/fair value estimate ratio is used to determine the undervaluation of these ETFs[^1^]. Despite the rebound in 2023, most stock ETFs still appear undervalued compared to their fair value estimates. For example, the Vanguard Total World Stock ETF, ticker VT, which serves as a global market proxy, is trading 11% below its fair value[^1^].

Let’s dive into four ETFs that offer compelling investment opportunities at even steeper discounts than VT. Each of these ETFs has also been awarded a Morningstar Medalist Rating of Bronze or better, indicating their high quality within their respective Morningstar categories[^1^].

## **iShares Core S&P Small-Cap ETF (IJR)**

The iShares Core S&P Small-Cap ETF, ticker IJR, provides a comprehensive view of the small-cap market at a remarkable discount of 25%[^1^]. This ETF tracks the S&P SmallCap 600 Index, a weighted benchmark consisting of 600 constituents selected by an index committee to represent the U.S. small-cap market[^1^]. IJR ensures a mild quality tilt by requiring stocks to meet S&P’s profitability and liquidity criteria for eligibility. This feature can prove beneficial during market downturns[^1^]. With an expense ratio of only 0.06%, IJR represents an attractive investment choice and accurately mirrors the small-cap landscape[^1^].

## **iShares MSCI USA Value Factor ETF (VLUE)**

The iShares MSCI USA Value Factor ETF, ticker VLUE, trades at a significant discount of 22% below its fair value estimate[^1^]. This ETF is based on the MSCI Enhanced Value Index, which identifies stocks with strong value traits from each sector and weights them according to a combination of those traits and their market capitalization[^1^]. Unlike most value funds that heavily concentrate on cheaper sectors, VLUE adopts a sector-neutral approach that mirrors the broader market composition[^1^]. This leads to a higher allocation of technology and consumer discretionary stocks, with a relatively lower allocation to utilities and financials[^1^]. While VLUE can be volatile, its lean expense ratio of only 15 basis points makes it an attractive option for investors willing to tolerate some market turbulence[^1^].

## **Schwab Emerging Markets Equity ETF (SCHE)**

The Schwab Emerging Markets Equity ETF, ticker SCHE, is currently trading at a substantial 23% discount to its fair value estimate[^1^]. This ETF tracks the FTSE Emerging Index, which covers large- and mid-cap stocks from over 20 developing nations, except for South Korea[^1^]. By weighing stocks based on market capitalization, SCHE aligns with the market’s collective perception of each stock’s relative value and reduces turnover[^1^]. The fund’s wide breadth of over 1,800 holdings helps mitigate geopolitical risks commonly associated with emerging-market stocks, making it an appealing choice for investors seeking exposure to these markets[^1^].

## **Dimensional International Value ETF (DFIV)**

The Dimensional International Value ETF, ticker DFIV, has earned a Morningstar Medalist Rating of Silver and is currently trading at a significant 18% discount to its fair value estimate[^1^]. This ETF focuses on the cheapest third of foreign developed-market stocks, typically consisting of around 550 holdings[^1^]. DFIV employs a strategy that tilts towards stocks with lower valuations and smaller market caps, while still benefiting from market-cap weighting advantages such as low turnover[^1^]. Although DFIV tends to be more volatile than its peers, investors who have stayed committed to this ETF have been rewarded with consistent outperformance[^1^].

Join Morningstar in exploring these compelling ETFs that offer investors attractive investment opportunities at discounted prices. Watch the video to learn more about these ETFs and why they may be worth considering for your portfolio[^1^].

*Keywords/tags: Charles Schwab, Schwab, iShares, iShares ETF, ETF investing, ETF investing for beginners, ETFs, ETFs explained, ETF, ETF vs mutual funds*

**Sources:**
[^1^]: Source: [Morningstar YouTube Channel](https://www.youtube.com/watch?v=rCCk4-Yjz8s)

#Morningstar  #CharlesSchwab #ETFInvesting

Compelling ETFs that trade well below their fair value.

00:00 Introduction
00:40 iShares Core S&P Small-Cap ETF IJR
01:37 iShares MSCI USA Value Factor ETF VLUE
02:29 Schwab Emerging Markets Equity ETF SCHE
03:17 Dimensional International Value ETF DFIV

Even after rebounding early in 2023, most stock ETFs still look undervalued according to the Morningstar price/fair value estimate ratio. This metric divides ETF prices by the aggregate of the qualitative and quantitative fair value estimates for the stocks in their portfolios. It indicates that Vanguard Total World Stock ETF, ticker VT—a proxy for the global market—trades 11% below its fair value.

Let’s start with iShares Core S&P Small-Cap ETF, which trades under the ticker IJR. This low-cost snapshot of the small-cap market sports a Morningstar Medalist Rating of Silver and trades at a 25% discount.

This fund tracks the S&P SmallCap 600 Index, a market-cap-weighted benchmark whose 600 constituents are selected by an index committee to represent the U.S. small-cap market. Stocks must meet S&P’s profitability and liquidity requirements to be eligible, which introduces a mild quality tilt and can help during market downturns. Still, this fund accurately represents the small-cap landscape and comes with an attractive price tag of 0.06%.

This fund looks cheap because the U.S. small-cap market looks cheap. That may be because smaller firms are more sensitive to economic downturn than their larger peers. But for investors that see a bright future for small caps, IJR is a strong choice.

Next up is iShares MSCI USA Value Factor ETF, ticker VLUE. This Silver-rated strategy trades 22% below its fair value estimate.

This fund follows the MSCI Enhanced Value Index, which selects stocks with the strongest value traits from each sector, then weights them by a combination of those traits and their market capitalization. The index’s sector-neutral approach is what makes it unique. Unlike most value funds that load up on cheaper sectors, this fund’s sector composition mimics the broad market. So, it tends to have a heavier dose of tech and consumer discretionary stocks and a leaner allocation to utilities and financials.

VLUE is a deep-value fund by design, so it’s no surprise to see it trade at a deep discount. The fund tends to be a bumpier ride than most of its peers, but its lean 15-basis-point expense ratio may help some investors stomach the volatility.

Our next fund looks overseas at emerging-market stocks. Schwab Emerging Markets Equity ETF trades under the ticker SCHE and comes at a 23% discount to its fair value.

This fund tracks the FTSE Emerging Index, which covers large- and mid-cap stocks from more than 20 developing nations. That includes China A-shares but not Korean stocks because FTSE classifies South Korea as a developed market. The fund weights stocks by market capitalization, which channels the market’s collective view on each stock’s relative value and dials back turnover.

Much of this fund’s appeal lies in its breadth. Over 1,800 holdings shape this far-reaching portfolio. That helps reduce the geopolitical risk that emerging-markets stocks face, a key concern that explains much of the portfolio’s discount.

The last fund on my list is Dimensional International Value ETF, ticker DFIV. This fund earns a Morningstar Medalist Rating of Silver and trades 18% below its fair value estimate.

This fund targets the cheapest third of foreign developed-markets stocks, which usually translates into about 550 holdings. It starts with these companies’ market-cap weights and tilts toward those with lower valuations and smaller market caps. So, the fund reaps many of market-cap-weighting’s benefits—especially low turnover, in this case—while leaning into the value and small-size factors.

As one of the deepest-value portfolios in the foreign large-value Morningstar Category, this fund tends to be more volatile than most of its peers. However, investors that stuck with this fund have been rewarded. Over the 10 years through May 2023, it beat the MSCI ACWI ex USA Value Index—its category benchmark—by 1.84 percentage points annually.

What to watch from Morningstar.

3 Solid ETFs That Favor Tech Stocks https://youtu.be/WrBFcYkgM4A

4 Great Dividend Funds https://youtu.be/rCCk4-Yjz8s

3 Great Emerging Markets ETFs https://youtu.be/hHWqYCIUf-o

Active ETFs Take Off –– 3 Ideas for Investors https://youtu.be/TEyy-xUsgVM

Read what our team is writing.

Ryan Jackson https://www.morningstar.com/authors/2385/ryan-jackson

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