This index fund is a cheap way to get exposure to large-cap value stocks, which are outperforming this year.
Why Vanguard Value Index Is a Good Investment Today
May 24, 2022
Mentioned: Vanguard Value Index Inv (VIVAX), Vanguard Value Index I (VIVIX), Vanguard Growth Index Admiral (VIGAX), Vanguard Value Index Adm (VVIAX), Vanguard Value ETF (VTV)
Vanguard Value Index's (VVIAX) broadly diversified portfolio, low turnover, and pronounced cost advantage make it one of the best large-value funds available. Its admiral, institutional, and exchange-traded shares earn Morningstar Analyst Ratings of Gold, while the pricier investor shares are rated Silver.
The CRSP U.S. Large Cap Value Index, which this fund fully replicates, includes stocks that represent the cheaper half of the U.S. large-cap market. Its constituents receive low valuations for various reasons, such as a saturated industry or declining fundamentals. Most value stocks deserve their weak valuations, but those that exceed the modest expectations embedded in their stock prices can reward patient investors.
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The index weights stocks by market cap, which is an efficient approach that channels the market's collective wisdom. Large-cap stocks garner widespread investor attention, so they tend to be priced with reasonable accuracy. Market-cap-weighting also helps dial back turnover and the associated transaction costs, with help from comprehensive index buffers.
The index buffers also promote diversification, as they allow stocks to float well into growth territory and remain in the portfolio. So, while only 3% of this portfolio overlaps with Vanguard Growth Index (VIGAX)—a small share for a style index fund—it includes numerous blend stocks that can provide relief when value slumps. The fund diversifies well at other levels, too. No sector constitutes more than financials' 22% weight, and a broad reach diminishes firm-specific risk.
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The portfolio's sector composition, value-growth tilt, and market-cap orientation all approximate the large-value Morningstar Category average. By mimicking the shape of its average peer, this fund amplifies the impact of its distinct cost advantage and positions itself for solid category-relative performance in the long run.
Key Proprietary Morningstar Metrics
Morningstar Analyst Rating: Gold
Process Pillar: Above Average
People Pillar: Above Average
Parent Pillar: High