As the case for value investing grows stronger, value stock funds have proliferated in the fund universe. Vanguard, the largest mutual fund company in the world, offers one of the biggest selections of funds for building a diversified, core/satellite investing strategy just around value stocks.
Research has shown that value stocks offer greater upside potential over the long term with less volatility than growth stocks. History also shows that small- to mid-cap stocks tend to outperform large-cap stocks over the long term but with greater volatility. Depending on your risk profile, your core holding allocation could be large enough to temper the higher volatility of the satellite funds. At the same time, broader exposure to different stock market segments tends to smooth out returns.
Key Takeaways
- The three Vanguard funds mentioned each offer exposure to companies by market cap.
- Value funds, which are made up of value stocks, have been shown to perform well over a long time period but with increased short-term volatility.
- Vanguard is known as a company with funds that accurately track indexes with low expense ratios.
Vanguard Value Index Fund Admiral Shares (VVIAX)
With more than $143 billion in assets as of October 2022, the Vanguard Value Index Fund Admiral Shares Fund is one of the market’s largest and most successful value funds. The fund, considered a core holding, employs a long-term buy-and-hold approach investing in stocks that make up the CRSP U.S. Large-Cap Value Index.
As of October 2022, the fund is currently invested in 344 stocks that the fund managers consider to be undervalued and out of favor with investors. The fund targets several sectors, including financial, health care, consumer staples, and industrials, with United Health Group, Exxon Mobil Corps, Johnson & Johnson, and Berkshire Hathaway Inc. among its top holdings. The fund has returned 10.48% over the last 10 years and 7.06% over the last five years. In addition, the fund has low turnover, which helps to keep its expense ratio of 0.05% among the lowest in its category.
Because it is an Admiral Shares fund, the minimum investment in the fund is $3,000. It is also available as an ETF and trades under the ticker VTV. The ETF had an expense ratio of 0.04% as of Oct. 14, 2022.
Vanguard Selected Value Fund (VASVX)
The Vanguard Selected Value Fund is an actively managed fund that targets undervalued companies in the mid-cap range, which makes it an ideal satellite holding for a portfolio. As of October 2022, the fund had invested its $5.7 billion of assets in 129 stocks, including up to 5.0% in non-U.S. companies. The financial services and industrial sectors are highly represented among their holdings because they tend to have large numbers of companies considered to be undervalued or out of favor.
As an actively managed fund, Vanguard outsources to three subadvisors that handle different aspects of the fund’s management. Overall, the fund’s managers employ a long-term buy-and-hold approach, willing to give underperforming companies time to turn things around. The strategy can pay off for patient investors who have seen an average annual return of 8.79% over the last 10 years, and a return of 3.37% over the last five years, as of Oct. 14, 2022. For an actively managed fund, its expense ratio is considered low at 0.32% as of Oct. 14, 2022.
This fund also requires a minimum investment of $3,000.
Vanguard Small-Cap Value Index Fund Admiral Shares (VSIAX)
To round out the core/satellite value investing strategy, the Vanguard Small-Cap Value Index Fund captures the small-cap range of stocks offering even greater upside potential. The fund has more than $45.2 billion in assets spread across 888 holdings consisting of small-cap stocks as of Oct. 14, 2022.
Its top holdings are Quanta Services, Molina Healthcare Inc., Atmos Energy, and IDEX Corp. The fund’s objective is to mirror the Center for Research in Security Prices (CRSP) Small-Cap Value Index. As of Oct. 14, 2022, it had a 10-year return of 9.46% and a five-year return of 4.42%. In addition, its expense ratio of 0.07% is considered extremely low.
The fund requires the same $3,000 minimum deposit but is available as an ETF, trading under the ticker VBR.
What are the Best Vanguard Value Funds?
Because Vanguard offers so many value funds, the best funds are the ones that match your risk tolerance and investing goals.
What Happened to Vanguard U.S. Value Fund?
The Vanguard U.S. Value Fund closed to new investors in 2020 after merging into the Vanguard U.S. Value Index Fund.
Does Vanguard Have a Value ETF?
Yes. Most Vanguard value mutual funds have an exchange-traded fund equivalent.
