What Is the Vanguard U.S. Value Factor ETF and Who Should Buy It?
Key Points
The Vanguard U.S. Value Factor ETF has gained about 28.5% over the past year and has delivered an annualized return of 10.96% since its inception eight years ago.
The fund is actively managed and charges a slightly higher expense ratio than typical passive Vanguard ETFs.
Tech stocks and the artificial intelligence (AI) boom tend to get a lot of attention from investors. But sometimes undervalued stocks fly under the radar and beat the major names and the most highly praised sectors.
The Vanguard U.S. Value Factor ETF (NYSEMKT: VFVA) holds a diversified portfolio of value stocks that are expected to have lower valuations compared to their fundamentals. In the past year, shares of this value stock exchange-traded fund (ETF) have gained about 28.5%, outperforming the S&P 500 and the tech-heavy Nasdaq-100.
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Let's take a closer look at this Vanguard ETF and see if it's a good choice for your portfolio.
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Vanguard U.S. Value Factor ETF: 666 stocks, 10.96% annualized returns for eight years
Vanguard is known for offering low-cost, passive index funds. This ETF is a little different. The Vanguard U.S. Value Factor ETF is actively managed and charges a slightly high (for Vanguard) but still affordable expense ratio of 0.13%. The fund's managers use a rules-based quantitative model to choose U.S. stocks that they believe are undervalued and likely to outperform in the future.
The ETF holds 666 stocks and includes companies of all sizes: large cap, mid cap, and small cap. It is well-diversified across sectors. The fund's top sector holdings are financials (25.7%), consumer discretionary (16.8%), healthcare (14.6%), technology (11.4%), and industrials (9.8%).
Since its inception in February 2018, the fund has delivered average annual returns of 10.96% by net asset value. More recently, it's delivered annualized returns of about 27.9% in the past year and 10.8% over the past five years.
The fund's top five stock holdings are in energy, healthcare, and tech companies:
- EOG Resources: 0.84% of the fund
- Bristol Myers Squibb: 0.83%
- Salesforce: 0.80%
- Cigna Group: 0.78%
- Intuit: 0.76%
Why buy the Vanguard U.S. Value Factor ETF -- or not
Vanguard is bullish on value stocks. According to recent market forecasts, the company's research team expects U.S. value stocks to outperform U.S. growth stocks by 1.6 to 3.6 percentage points per year for the next 10 years. The Vanguard research didn't recommend any specific ETFs, but the Vanguard U.S. Value Factor ETF fits this strategy: It's a broadly diversified all-cap value ETF.
If you believe that today's undervalued stocks might be tomorrow's top performers, and you're willing to pay a little extra for the higher expense ratio of an actively managed fund, this Vanguard value ETF might be worth a look. But it didn't make the list of best value ETFs. Other value stock funds charge lower fees and might be a better choice for long-term investors.
Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Intuit, and Salesforce. The Motley Fool recommends EOG Resources. The Motley Fool has a disclosure policy.