This fund is a passive income powerhouse that holds hundreds of reliable value and dividend stocks.
Vanguard offers dozens of stock exchange-traded funds, some of which, like the Vanguard S&P 500 Growth ETF, have outperformed the S&P 500 and Nasdaq Composite so far this year. But all of the Vanguard funds that don’t hold Nvidia have underperformed, even the top-ranked fund, the Vanguard Value ETF (VTV 1.27%).
If you’re concerned about a stock market sell-off, here are seven reasons why this particular fund stands out as a top ETF to buy.
Image source: Getty Images.
1. Effective diversification
The Vanguard Value ETF holds 342 stocks, compared to the Vanguard S&P 500 ETF (VOO 1.12%) which has 504 stocks and the Vanguard Growth ETF (VUG 0.85%) which has 188. However, as the table shows, the Vanguard Value ETF has a much lower weighting towards top stocks.
Vanguard Value ETF
Vanguard S&P 500 ETF
Vanguard Growth ETF
company
Weighting
company
Weighting
company
Weighting
Broadcom
3.6%
Microsoft
7.2%
Microsoft
13%
Berkshire Hathaway
3%
NVIDIA
6.6%
apple
12%
JPMorgan Chase
2.8%
apple
6.6%
NVIDIA
11.3%
ExxonMobil
2.5%
alphabet
4.3%
alphabet
7.5%
UnitedHealth
2.3%
Amazon
3.9%
Amazon
Five%
Procter & Gamble
1.9%
Meta Platform
2%
Meta Platform
4.3%
Johnson & Johnson
1.7%
Berkshire Hathaway
1.6%
Eli Lilly
3%
Home Depot
1.7%
Eli Lilly
1.6%
Tesla
2.1%
Merck
1.5%
Broadcom
1.5%
visa
1.6%
AbbVie
1.5%
JPMorgan Chase
1.3%
Costco Wholesale
1.5%
Data source: Vanguard.
The Vanguard Value ETF holds just 22.5% of its total assets in the top 10 stocks, far below the 36.6% of the Vanguard S&P 500 ETF and the 61.3% of the Vanguard Growth ETF. This low weighting to top holdings means the fund won’t be hit as hard if a few big names fall. But it could drag the fund down if those megacaps deliver outsized returns. That’s exactly why the Vanguard Growth ETF has done so well this year.
Diversifying your portfolio and not being too highly correlated to any particular theme or sector can help protect you from some downside risk. The correlation between the big tech companies isn’t perfect, but if Microsoft falls hard, it’s likely that Amazon, Alphabet and others won’t be doing so well either, which could lead to volatility in growth ETFs.
2. Solid yields
The Vanguard Value ETF’s yield of 2.3% is significantly higher than the 1.3% yield of the Vanguard S&P 500 ETF (VOO 1.12%) and the 0.4% yield of the Vanguard Growth ETF (VUG 0.85%).
When major indexes are making big gains, a one or two percent difference in yield doesn’t look so attractive. Rather, dividends show their true value when stock prices are falling. Earning passive income without selling stocks can be a lifesaver during market downturns. It can provide you with additional funds to reinvest in the market at attractive prices. Or it can help with financial planning.
Either way, the Vanguard Value ETF’s higher yield compared to S&P 500 funds and growth-oriented funds is an advantage in times of selling pressure.
3. Low Rating
Many large growth stocks have seen their valuations soar as their stock prices have risen faster than their earnings. Funds that don’t hold large growth stocks, or that hold them in smaller weightings than the S&P 500, are likely to trade at a discount to their benchmarks.
The Vanguard Value ETF has a price-to-earnings (P/E) ratio of 19.7, roughly half that of the Vanguard Growth ETF and significantly lower than the Vanguard S&P 500 ETF’s P/E ratio of 27.1.
In periods of investor optimism, valuations can become inflated. But during widespread selling pressure, valuations can be tested as investors become less willing to pay a premium for potential growth and instead focus on a company’s current situation. Similarly, in a surging bull market, investors’ risk tolerance increases and they become more willing to pay a premium for companies in the hope that they can close the gap between expectations and reality.
Regardless of market trends, investing in value stocks is a good choice for risk-averse investors, especially those who value capital preservation over capital appreciation.
4. Great past performance
In the long run, innovation and technological breakthroughs can lead to explosive gains in the stock market. This is why growth stocks have a higher risk/potential reward profile than value stocks. But that doesn’t mean value stocks don’t offer rewards to patient investors.
Vanguard Value ETF has delivered superior returns, generating total returns of 16% over the past year, 29% over the past three years, 68% over the past five years, and 161% over the past 10 years. The fund invests in industry-leading companies, many of which are continually growing earnings, raising dividends, and buying back their own shares.
In this sense, the Vanguard Value ETF offers investors a steady, passive income and potential capital gains. This multifaceted approach contrasts with growth-focused ETFs, which rarely pay dividends and put all the pressure on companies to grow value.
5. Resistance to selling
A drawdown is a decline from a previous high. A drawdown of 10% or more in a major index like the S&P 500 is called a correction, while a drawdown of 20% or more is called a bear market.
Over the past 15 years, the largest drop in the Vanguard Value ETF was 37%, which occurred during the violent market crash of March 2020. For those following the market at the time, the sell-off was truly an anomaly and was primarily a knee-jerk reaction to the COVID-19 pandemic. Losses were more than covered, and markets recovered by the end of the year.
Other notable sell-offs over the past 15 years include a 20% drop in the summer of 2011. There was also a drop of around 15% in late 2022. But generally speaking, it’s rare for the Vanguard Value ETF to fall more than 15% from its all-time high.
VTV data by YCharts
Of course, no one knows where the market will go, and what has happened in the past is no predictor of what will happen in the future, but the Vanguard Value ETF’s overall low volatility is reassuring, especially for risk-averse investors.
6. Low Expense Ratio
Vanguard ETFs have the lowest expense ratio at 0.03%. The Vanguard Value ETF is next at 0.04%, or just $4 per $10,000 invested. The ultra-low-cost profile of Vanguard’s top fund is why it also has the highest net asset value of any ETF. With $168.5 billion in net assets, the Vanguard Value ETF is one of the largest equity value funds in the United States.
The fund also offers fractional shares, with minimum investments of just $1, well below the stock price of $165.
The combination of low costs and a low entry level makes the Vanguard Value ETF a convenient and inexpensive way to achieve diversification.
7. Plug-and-play investment vehicles
The six features we’ve discussed all boil down to the Vanguard Value ETF’s greatest quality: It provides a passive, plug-and-play way to continually deploy new capital in the market, even when stock prices are crashing.
It’s one thing to talk about investing during periods of volatility and steep stock price declines, but it’s another to experience it firsthand. It’s tough when a company you love loses a quarter of its value, then you lose another third of that — a 50% drop, to put it in perspective. But it feels even worse when you keep buying stocks only to watch them fall and fall.
Investing requires a lot of patience and perseverance, and during periods of sudden selling pressure, it can be much easier (emotionally and psychologically) to use ETFs as a passive investment vehicle. ETFs are a great way to automate the decision-making process during periods of selling pressure. They allow you to diversify, so there is no risk of a single position dramatically impacting your financial situation.
Having a strategy in place before selling pressure occurs can help you cut through the noise and improve your decision-making when uncertainty and fear start to spread across the market.
Randi Zuckerberg, former director of market development and public relations at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool subsidiary. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Folber does not hold any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, The Home Depot, JPMorgan Chase, Merck, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, Vanguard Index Funds-Vanguard Value ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom, Johnson & Johnson, and UnitedHealth Group and recommends buying Microsoft January 2026 $395 calls and selling Microsoft January 2026 $405 calls. The Motley Fool has a disclosure policy.
