Principal Value ETF (PY)
Principal Value ETF (ticker PY) is a passively managed exchange-traded fund that holds U.S. large-capitalization stocks selected using a systematic, rules-based value-investing filter. Rather than tracking all large-cap companies equally by market weight, PY emphasizes stocks that appear statistically cheap by metrics like price-to-earnings ratios, price-to-book values, and dividend yields. The fund is sponsored by Principal Asset Management, operates with low costs typical of index-tracking ETFs, and is designed for investors who believe cheaper stocks offer better long-term value and are willing to tolerate the style drift and underperformance that can occur when value is out of favour.
The value selection framework
PY does not buy all large-cap U.S. stocks equally. Instead, it applies a proprietary filtering system that ranks companies by valuation metrics and weights positions accordingly. Stocks trading at low multiples of earnings, cash flow, and book value receive higher weights in the portfolio, while expensive-looking growth companies receive lower weights or are excluded entirely. This systematic underweighting of growth and overweighting of value means PY’s sector composition differs markedly from a market-cap-weighted index: traditional value sectors like financials, real estate, and energy typically represent a larger share of the fund than they would in the S&P 500, while technology is deliberately underrepresented.
The selection criteria operate mechanically, without room for discretionary judgment, which removes emotional bias from decision-making. Each stock is scored on its valuation characteristics, and the fund rebalances periodically as those valuations change. Companies that become cheaper often receive increased weight; those that have risen in price are trimmed back. This automatic contrarian discipline — buying depressed sectors and selling hot ones — is a key advantage of rules-based value investing over ad-hoc judgment.
How the fund operates and what it costs
PY trades as an exchange-traded fund on the NASDAQ, meaning investors can buy and sell shares intraday at market-set prices rather than waiting for once-daily pricing. The fund’s structure is straightforward: no leverage, no inverse mechanics, no daily rebalancing. It simply holds a basket of large-cap value stocks and distributes any dividend income to shareholders, typically quarterly.
The fund’s operating cost is captured in its expense ratio, which is competitive with other passive large-cap ETFs. Dividend yield tends to be above the market average because value stocks — particularly banks, utilities, and mature industrial companies — often pay dividends at higher rates than the overall market. An investor reinvesting those dividends can benefit from compounding over long periods, making the fund attractive for buy-and-hold accounts.
Liquidity is strong. The fund holds billions of dollars in assets and experiences steady trading volume, so bid-ask spreads are narrow and an investor can typically buy or sell a meaningful position without encountering slippage costs.
The promise and the risk
The fundamental bet in PY is that value stocks — as a category — outperform growth stocks and the market as a whole over extended periods. Decades of academic research support this claim when measured over multi-decade periods, and empirically, value stocks have delivered superior returns across many rolling 10-year and 20-year windows in U.S. history. But this advantage is neither consistent nor guaranteed. Extended periods emerge — sometimes lasting many years — when growth dramatically outpaces value, as happened during the late 1990s technology boom and, more recently, the 2010s and the early-2020s period of ultra-cheap interest rates that fuelled growth-stock enthusiasm.
An investor holding PY during value’s “lost decade” faces two distinct risks. The first is simple: underperformance. Other large-cap funds, particularly those tracking the S&P 500 or holding growth-tilted portfolios, may deliver materially higher returns, and the psychological weight of underperformance can tempt abandonment of the strategy at precisely the wrong time. The second is sector concentration. During periods when certain sectors (like financials or energy) are deeply out of favour, PY’s overweight to those sectors amplifies its decline relative to more balanced indices. A banking crisis, commodity crash, or energy-market disruption can hurt PY severely.
Tracking error — the degree to which PY deviates from its stated selection criteria — is typically very low and is explained entirely by the fund’s expense ratio, not by management slippage.
Who the fund suits and where to start research
PY appeals to value-focused investors with a time horizon of at least several years, disciplined investors who can stick with a systematically undervalued approach even during stretches of marked underperformance, and retirees or income investors attracted to the fund’s above-market dividend yield. It is less appropriate for investors with weak conviction in value as a style or for those who may panic-sell during downturns.
Anyone considering PY should begin with the fund’s prospectus and fact sheet, published by Principal Asset Management. The prospectus details the exact selection criteria, lists all current holdings with their weights, and discloses fees and risks. The fact sheet summarises performance history, current sector allocation, dividend yield, and turnover. Review the fund’s top holdings to understand what you own; check its valuation characteristics (price-to-earnings, price-to-book, dividend yield) relative to the broader S&P 500; and examine the fund’s performance in both up and down markets over a full market cycle, not just recent years. Value has had periods of marked outperformance, and periods of deep underperformance; only an investor who can endure both deserves to hold the fund.