Value investing may not sound as exciting as investing in the next hot growth stock, but it’s a time-honored investing style that some of the most renowned investors of all time have used to generate tremendous returns over the years. In an uncertain market environment like the current one, investing in a well-established value ETF like the Vanguard Value ETF (NYSEARCA:VTV) makes a lot of sense.
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I’m bullish on VTV given its attractive valuation, low costs, great diversification, above-average dividend yield, and solid long-term track record.
Let’s take a closer look at the largest value-oriented ETF in the stock market.
What is Value Investing?
Value investors typically look for stocks that are underappreciated and thus undervalued by the market. These stocks typically look inexpensive based on widely-used valuation metrics such as price-to-earnings ratios. Value investing can be compared to trying to buy a $100 bill for $80.
This strategy can be effective — value stocks have plenty of room for upside if they beat low expectations as they trade for undemanding multiples, and they can also offer some downside protection as they don’t have overly-inflated valuations. This defensiveness can also make them a sensible area to invest in in an uncertain market environment.
Many of the market’s legendary figures, ranging from Benjamin Graham and Warren Buffett to Seth Klarman and Joel Greenblatt, are considered to be value investors first and foremost.
What is VTV’s Strategy?
VTV is an index fund that invests in an index of large-cap value stocks, the CRSP US Large Cap Value Index. Launched in 2004, VTV is by far the largest value-focused ETF in the market today, with $96.8 billion in assets under management (AUM).
VTV’s Portfolio
VTV has a diversified portfolio of 342 stocks, and its top 10 holdings make up just 23.1% of the fund. Below, you’ll find an overview of VTV’s top 10 holdings using TipRanks’ holdings tool.
It’s only fitting that VTV’s top holding is Berkshire Hathaway (NYSE:BRK.B), the massive $735 billion investment vehicle led by the man widely seen as the greatest value investor of all time, Warren Buffett.
Beyond Berkshire, VTV’s top holdings include a mix of sensible, blue-chip names from sectors like healthcare, energy, and financials that typically have had lower valuations than the broader market in recent years. Energy is represented through U.S.-based oil supermajors ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), while JPMorgan Chase (NYSE:JPM) joins Berkshire Hathaway in representing financials.
Meanwhile, household names like Johnson & Johnson (NYSE:JNJ), AbbVie (NYSE:ABBV), and Merck (NYSE:MRK) carry the flag for the healthcare sector.
Keep in mind that value stocks don’t always have to come from sleepy or old-school sectors of the market. Leading semiconductor company Broadcom (NASDAQ:AVGO) is another top 10 holding for VTV.
While VTV’s holdings come from a variety of industries, one thing they have in common is that they largely trade for below-market valuations. For example, the S&P 500 (SPX) currently has a price-to-earnings multiple of 19.2.
Just looking at a few of VTV’s top holdings for comparison, ExxonMobil currently trades for 11.7 times earnings, JPMorgan Chase has a valuation of just 8.7 times earnings, and AbbVie has a valuation of 13.2 times earnings. Altogether, VTV, as a whole, has an average price-to-earnings ratio of 15.5 as of September 30.
Another thing that VTV’s top holdings have in common are some fantastic Smart Scores. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks and ETFs a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
Remarkably, nine out of VTV’s top 10 holdings enjoy Outperform-equivalent Smart Scores of 8 or better. ExxonMobil, Procter & Gamble (NYSE:PG), AbbVie, Broadcom, and Merck lead the way with ‘Perfect 10’ Smart Scores.
VTV itself enjoys an Outperform-equivalent ETF Smart Score of 8.
VTV’s Performance Over Time
While it hasn’t produced eye-popping results, VTV has been a consistent performer over the long haul. As of the end of the most recent month, the fund has returned 12.4% on an annualized basis over the past three years, 7.3% annualized over the past five years, and 9.8% annualized over the past 10. Since its inception nearly 20 years ago, VTV has returned 8.1% on an annualized basis.
Above-Average Dividend
Additionally, VTV offers a decent dividend yield of 2.7%, which isn’t a number that jumps off the page at you but is still much higher than the S&P 500’s average dividend yield of just 1.6%.
Furthermore, VTV has a strong history as a dividend payer. The fund has been making dividend payments to investors for 18 years in a row, and it has increased its total annual payout for 12 straight years.
A Low-Cost Option
Vanguard is known for offering low-cost funds, and VTV fits in nicely with this tradition. VTV is an extremely cost-effective choice for investors, with a dirt-cheap expense ratio of just 0.04%. This means that an investor putting $10,000 into the fund would pay just $4 in expenses in year one. Assuming that the expense ratio remains 0.04% and that the fund returns 5% per year going forward, this same investor would pay just $51 in fees over the course of a decade.
Is VTV Stock a Buy, According to Analysts?
Turning to Wall Street, VTV earns a Moderate Buy consensus rating based on 267 Buys, 69 Holds, and seven Sell ratings assigned in the past three months. The average VTV stock price target of $161.72 implies 19.9% upside potential.
The Takeaway: VTV Presents Good Value
A value ETF like VTV might not be the biggest attention grabber in the market, but this is a very solid ETF. It gives investors plenty of diversification at a rock-bottom price. Furthermore, VTV trades at a modest valuation and sports an above-average dividend yield. Its top holdings have undemanding valuations while boasting top-notch Smart Scores.
With all of these things going for it, VTV looks like a solid option for investors to add to their portfolios, especially in an uncertain market environment like the one we are navigating through now.
