Cheap Exposure to Mid-Cap Value Stocks
This ETF's approach may be simple, but its low fee gives it a durable edge.
Vanguard Mid-Cap Value ETF (VOE) is the cheapest mid-cap value ETF available, which makes it an enticing option. It targets stocks representing the cheaper half of the U.S. mid-cap market and weights its holdings by market capitalization, which helps keep transaction costs low. This results in a well-diversified portfolio, which includes Clorox (CLX), ConAgra Foods (CAG), and Dr Pepper Snapple Group (DPS). The fund’s holdings are a bit riskier than large-cap stocks. They are less likely to enjoy durable competitive advantages, tend to be more volatile, and generally don’t hold up as well during market downturns, but they may compensate investors over the long term. Therefore, this may be a suitable satellite holding for investors with a relatively high risk tolerance.
Value stocks tend to have less-attractive business prospects than their faster-growing counterparts, so they are not necessarily bargains. But they may offer compensation for their risk over the long term. They could also become undervalued if investors extrapolate past growth--or lack thereof--too far into the future. Historically, value stocks have outpaced their growth counterparts in nearly every market studied over the long term. This effect has been most pronounced among small-cap stocks and smallest among large caps. While small-cap value stocks may offer greater upside potential, mid-cap stocks are generally a little less risky.
Alex Bryan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.