A strong U.S. large-cap value ETF

This is one of the best choices for exposure to U.S. large-value stocks.

Alex Bryan 3 July, 2018 | 5:00PM
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Value stocks have disappointed over the past decade, significantly lagging their growth counterparts and testing even the most patient investors. Such bouts of underperformance are a real risk for any strategy that deviates from the market, and those who are not comfortable with it should stick with broad market index funds. However, value investing is still a reasonable strategy that should reward investors over the long term.

While it's difficult to predict when large-value stocks will do well relative to the broader market, the U.S.-listed  Vanguard Value ETF (VTV) is one of the best options for exposure to this area of the market. It offers a diversified, market-cap-weighted portfolio, which promotes low turnover and is representative of its actively managed peers' opportunity set.

The fund tracks the CRSP U.S. Large Cap Value Index, which targets stocks representing the cheaper and slower-growing half of the U.S. large-cap market and weights them by market capitalization. This weighting approach tilts the portfolio toward the largest value stocks, giving the fund a larger-cap orientation than most of its peers. The biggest stocks are not necessarily the cheapest. Market-cap weighting can even reduce the fund's exposure to stocks as they become cheaper, as this typically accompanies a decline in market cap. That said, the fund tends to have a similar value orientation to the average fund in the large-cap value category in the United States.

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA, is director of passive strategies for North America at Morningstar. Before assuming his current role in 2016, he spent four years as an analyst covering equity strategies. He holds an MBA with high honors from the University of Chicago Booth School of Business.

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