7 Reasons to Buy Vanguard Value ETF If You’re Concerned About a Stock Market Selloff

Vanguard offers dozens of stock exchange-traded funds (ETFs). Some of them, such as Vanguard S&P 500 Growth ETFsurpassed S&P500 AND Nasdaq Composite so far this year. But every Vanguard fund that doesn’t have Nvidia did not achieve the expected results – even the best funds such as Vanguard Value ETF Fund (TVN) 1.27%).

Here are seven reasons why this particular fund stands out as the best ETF to buy if you’re worried about a stock market sell-off.

1. Effective diversification

The Vanguard Value ETF has 342 positions, compared to 504 positions in the Vanguard Value ETF. Vanguard S&P 500 ETF Fund (INTERVIEW) 1.12%) and 188 for Vanguard Growth ETF (WUG) 0.85%). However, as you can see in the table, the Vanguard Value ETF is much less weighted at the top.

Data source: Vanguard.

The Vanguard Value ETF has just 22.5% of its weight in the top 10 holdings, far less than the 36.6% for the Vanguard S&P 500 ETF and the 61.3% for the Vanguard Growth ETF. The reduced weighting in the largest holdings protects the fund from a major blow if a few key holdings fall. But it could also hold the fund back if those megacap names deliver above-average returns — which is exactly what’s driving such a strong year for the Vanguard Growth ETF.

You can get some downside protection by having a diversified portfolio and not having too much correlation to a particular theme or sector. The tech-oriented megacap names aren’t perfectly correlated. But if Microsoft falls hard, chances are Amazon, Alphabet, and other names won’t do as well — which could translate into volatile movement in the Growth ETF.

2. Solid performance

The Vanguard Value ETF fund has a yield of 2.3%, which is significantly higher than the 1.3% yield for the fund Vanguard S&P 500 ETF Fund (INTERVIEW) 1.12%) or 0.4% yield Vanguard Growth ETF (WUG) 0.85%).

A difference of one or two percentage points in yield doesn’t look very appealing when the major indices are generating huge gains. Dividends show their true value when stock prices are falling. Accumulating passive income without having to sell stocks can be a godsend during a market downturn. It can provide additional funds to reinvest in the market at attractive prices. Or it can help with financial planning.

In any case, the higher yield of the Vanguard Value ETF compared to the S&P 500 or a growth fund is an advantage in the event of a sell-off.

3. Low valuation

Many large-cap growth stocks have seen their valuations rise as share prices have risen faster than earnings. Funds that don’t have large-cap names — or a lower weighting than the S&P 500 — are likely to trade at a discount to the benchmark.

The Vanguard Value ETF’s price-to-earnings (P/E) ratio of 19.7 is about half that of the Vanguard Growth ETF and significantly lower than the Vanguard S&P 500 ETF’s P/E of 27.1.

Valuations can be inflated during periods of investor optimism. But during a widespread sell-off, valuations can be challenged when investors are less willing to pay a premium for potential growth and are more concerned with where the company is today. Similarly, during rapidly rising bull markets, investors have a higher appetite for risk and are willing to pay a premium for the company in the hope that it will close the gap between expectations and reality.

Regardless of market conditions, investing in value stocks is a good choice for risk-averse investors, especially those who care more about capital preservation than capital growth.

4. Impressive past performance

In the long run, innovation and technological breakthroughs can lead to explosive stock market gains. That’s why growth stocks have a higher risk/return profile than value stocks. But that doesn’t mean value stocks can’t reward patient investors.

Vanguard Value ETF has delivered excellent returns, with a total return of 16% over the past year, 29% over the past three years, 68% over the past five years, and 161% over the past decade. The fund invests in industry-leading companies—many of which have consistently grown earnings, raised dividends, and bought back stock.

In that vein, the Vanguard Value ETF rewards investors with a reliable stream of passive income and potential capital gains. This multi-faceted approach contrasts sharply with growth ETFs, which pay very little in dividends, so the pressure is on companies to become more valuable.

5. Resistance to sales

A decline is a decrease from an all-time high. A decline of 10% or more in a major index like the S&P 500 is known as a correction, while a decline of 20% or more is a bear market.

Over the past 15 years, the largest drawdown ever experienced by the Vanguard Value ETF was 37% — which came in 2020 due to the brutal market crash in March. For anyone following the market at the time, the sell-off was a true anomaly and largely a knee-jerk reaction to the COVID-19 pandemic. The losses were more than recovered, and the market rebounded by year’s end.

Other notable sell-offs over the past 15 years include a 20% decline in the summer of 2011. There was also a decline of about 15% in late 2022. Overall, though, the Vanguard Value ETF has rarely fallen 15% or more from its all-time high.

VTV data by YCharts

Of course, no one knows where the market is headed. And what happened in the past is no crystal ball for what might happen in the future. Still, the overall lack of volatility in the Vanguard Value ETF is reassuring, especially for risk-averse investors.

6. Low cost factor

The lowest expense ratio of any Vanguard ETF is 0.03%. The Vanguard Value ETF is close behind, coming in at 0.04% — or just $4 for every $10,000 invested. The ultra-low expense profile of Vanguard’s top funds is why they have some of the highest net assets of any ETF. With $168.5 billion in net assets, the Vanguard Value ETF is one of the largest U.S. equity value funds.

The fund also offers fractional shares. The minimum investment is just $1 — significantly less than the $165 share price.

The combination of low costs and a low entry requirement makes the Vanguard Value ETF a convenient and affordable way to diversify.

7. Plug-and-play investment vehicle

The six features discussed so far constitute the greatest advantage of the Vanguard Value ETF: it is a passive, ready-to-use way to continually invest new capital in the market, even when stock prices are declining.

It’s one thing to talk about investing during periods of volatility and sell-offs; it’s another to endure it yourself. It can be painful when a company you like loses a quarter of its value, and then another third. Step away, and that’s a 50% sell-off. But it can be much worse if you keep buying stocks — only to see them fall lower and lower.

Investing requires a ton of patience and determination. And sometimes it’s much easier (emotionally and psychologically) to use ETFs as passive investment vehicles during a sell-off. ETFs are a great way to automate your decision-making process during a sell-off because you know you’re getting diversification — so there’s no risk that a single position will drastically impact your financial health.

Having a plan of action before a sell-off can help you filter out the noise and improve decision-making as uncertainty and fear tighten their grip on the broader market.

Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Daniel Foelber has no holdings in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, Home Depot, JPMorgan Chase, Merck, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, Vanguard Index Funds-Vanguard Value ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom, Johnson & Johnson, and UnitedHealth Group and recommends the following options: long January 2026 $395 call options on Microsoft and short January 2026 $405 call options on Microsoft. The Motley Fool has a disclosure policy.