This Vanguard Fund Is a Top Choice for Value Investors

Key Morningstar Metrics for Vanguard Value ETF

• Morningstar Medalist Rating: Gold
• Process Pillar: Above Average
• People Pillar: Above Average
• Parent Pillar: High

Vanguard Value ETF VTV constructs a well-diversified, market-cap-weighted basket of US large-cap value stocks for a low cost.

The fund replicates the CRSP US Large Cap Value Index, which holds large-cap stocks trading at lower valuations and weights them by their market cap. These companies have modest valuations that reflect their dimmer outlooks. However, performance relative to expectations is what counts, and these firms’ meager valuations are a lower hurdle to delivering solid returns.

US large-cap stocks attract widespread attention, and new information is quickly reflected in prices. Market-cap-weighting is a sensible approach here. It harnesses the market’s collective wisdom of each stock’s relative value.

The fund accurately mimics the contours of its average peer, which emphasizes the fund’s minuscule fee in driving Morningstar Category-relative outperformance over the long run. The fund’s sector allocations did not deviate by more than 5% from the category average as of April 2024. The fund also trades at a similar average valuation as its typical peer. On the other hand, the fund has a lower average market cap than the category average because of its broad reach, which improves overall diversification.

The fund is well diversified compared with its average peer. Its top 10 holdings represent only 22% of the portfolio, while the category average is 28%, so it has less stock-specific risk.

Vanguard Value ETF: Performance Highlights

The fund’s low fee, well-diversified portfolio, and its ability to accurately capture the opportunity set available to its peers drive its category-relative performance.

Over the 10 years through April 2024, Vanguard Value ETF outperformed its average peer by 1.61 percentage points annualized. Its low fee should help it continue that outperformance over the long run.

The fund is always fully invested, while its actively managed peers can hold cash. This aids its performance during market rallies. However, being fully invested isn’t likely to translate into strong performance during downtowns. That said, the fund held up better than its average peer in 2022, outperforming by 3.97 percentage points. The fund’s modestly higher exposure to industrials, energy, and communication-services stocks buoyed its performance.

Value stocks rebounded at the end of 2020 and continued their strong performance through March 2023, helping the fund outperform its typical peer by 1.27 percentage points annualized with similar volatility. The fund’s energy and industrials stocks along with its low cash drag aided its performance.

The fund has tightly tracked its index. It trailed the CRSP US Large Cap Value Index by only 6 basis points annualized over the three years through April 2024, or about 2 basis points higher than its 0.04% expense ratio.