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Norman Rothery is the value investor for Globe Investor's Strategy Lab. Follow his contributions here and view his model portfolio here.

It's been a hard year for Canadian value investors. Those who wisely steered clear of the resource sector might be down only a little bit.

But others will have to do some belt tightening this Thanksgiving.

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You can track the value segment of the Canadian stock market using proxies such as value-oriented exchange-traded funds (ETFs). While each fund has its own different definition of value, most tend to favour classic value investing ratios and factors.

For instance, Blackrock's iShares Canadian Value Index ETF (XCV) and its iShares Canadian Growth Index ETF (XCG) track the Dow Jones Canada Select Value and Growth indexes, respectively. They focus on six factors that include a stock's price-to-earnings ratio (forward and trailing), price-to-book-value ratio, dividend yield and earnings growth (forward and trailing). They slice the market up using these factors into value and growth groups that form the basis of the funds' portfolios.

It's also useful to get a sense of how well the value and growth styles have performed compared with the overall market, which is tracked by the iShares Core S&P/TSX Capped Composite Index ETF (XIC).

As it happens, both styles of ETFs have fared well over the last few years. The broad market, as represented by the S&P/TSX composite ETF, climbed at a 4.1-per-cent annual rate over the five years through to the end of September. The value ETF gained 4.2 per cent annually and the growth ETF advanced 5.5 per cent annually over the same period, according to Morningstar.ca.

Investors who want to buy these funds should be aware that this style of ETFs charges annual fees (MERs) of 0.56 per cent. That's fairly high compared with the broad market ETF, which costs only 0.1 per cent. (All of the performance figures mentioned herein have been reduced to reflect the annual fees.)

While the five-year figures are healthy, the recent performance of the value and broad market funds has been less encouraging. The S&P/TSX composite ETF fell 9 per cent over the last four quarters and the value ETF declined 14 per cent. More positively, the growth ETF held up well (despite a touch of weakness in recent weeks) and sports a one-year gain of 4.6 per cent.

The poor value pattern isn't isolated to the iShares Canadian Value ETF. Other funds specializing in small value stocks fared even worse in recent times. For instance, the DFA Canadian Vector Equity fund (class F), which has a small-value tilt, plunged 21.1 per cent over the last four quarters.

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Unfortunate investors who strayed into the resource sector have been severely wounded. The iShares S&P/TSX Capped Energy Index ETF (XEG) dropped 41.3 per cent over the last four quarters and the iShares S&P/TSX Capped Materials ETF (XMA) declined 29.7 per cent.

There's a whopping 18.6-percentage-point difference in one-year returns between the iShares Value and Growth ETFs. That's large enough for some investors to think about selling their value funds and jumping into growth.

The problem is, style hopping has a nasty habit of causing trouble. Instead of boosting their returns, investors often find themselves jumping out of the frying pan and into the fire.

Think back to the late 1990s when value investors were ridiculed as tired has-beens – and Warren Buffett had supposedly lost his touch.

Value funds were dumped in favour of high-tech funds that were stuffed to the gills with untested Internet stocks. The party ended in the early years of this century with a nasty bear market for tech stocks and a massive comeback for value stocks.

That's one reason why it is important for investors to rein in their emotions and look to the long term instead of panicking in the face of a little short-term adversity. The brave, with a nose for value and a little spare cash, will take the opportunity to do some shopping this fall.

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