THE S&P500 is still up compared to the year, but it fell in April. Investors worried about further bearish momentum are in the right place. Exchange traded funds (ETFs) can be a great way to achieve diversification and peace of mind during a selloff – knowing that you have exposure to several different sectors and themes.
Here is why the Vanguard Value ETF (NYSEMKT:VTV) is a good long-term investment and resistant to a stock market liquidation.
Lower risk and lower potential reward
The Vanguard Value ETF is huge: with over $170 billion in net assets, 340 equity holdings, and an expense ratio of just 0.04%.
The median market capitalization of each stock is $126.8 billion, so the fund is primarily targets large-cap value stocks. The average price-to-earnings (P/E) ratio of an ETF stock is 19.3 and the price-to-earnings (P/E) ratio is 2.8, compared to an average P/E ratio of 26.1 and a P/B. of 4.5 in the Vanguard S&P 500 ETF (NYSEMKT: VOL). Additionally, the Vanguard Value ETF yield is a much better 2.4% versus 1.3% for the Vanguard S&P 500 ETF.
When we look at each fund’s sector allocation, it’s easy to see why the Vanguard Value ETF has a higher yield and lower multiple than the Vanguard S&P 500 ETF.
|
Sector |
Vanguard Value ETF |
Vanguard S&P 500 ETF |
|---|---|---|
|
Financial datas |
19.9% |
13.1% |
|
Health care |
16.9% |
12.4% |
|
Industrial |
15.3% |
8.8% |
|
Technology and communications |
13.2% |
38.5% |
|
Basic consumption |
9.4% |
6% |
|
Discretionary consumption |
8.1% |
10.3% |
|
Energy |
7.2% |
4% |
|
Utilities |
5.1% |
2.2% |
|
Real estate |
3% |
2.3% |
|
Basic materials |
1.9% |
2.4% |
Data source: Vanguard.
The Value ETF has higher weightings in the financials, healthcare, industrials, consumer staples, energy, utilities and real estate sectors. These sectors leave out many flashy growth stocks, including all of the “Magnificent Seven.”
All investment decisions involve some level of compromise. With the Vanguard Value ETF, investors give up a ton of growth potential in exchange for higher income and better valuations based on current earnings. In other words, these companies have a proven track record and their value is based more on what they do today than what they will do in the future. This level of certainty tends to be effective when the market sells off and investors turn to proven winners and far from potential winners.
Switch to autopilot
I was watching the new show Franklin on Apple TV+ the other day, and there was a quote that caught my attention. Benjamin Franklin picnic in a park in France. The person he is with makes a bold statement about the American War of Independence, and Franklin responds: “[That’s] an easy thing to say on a sunny day in France. » In other words, there is nothing to lose by making a claim when you are safe from danger.
When it comes to investing, it’s easy to say that a rising stock could move higher or ride the wave of a thriving bull market. But it is much more difficult to resist the cross-currents of a fierce bear market, let alone make balanced decisions…
