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ETF Specialist

Cheap Exposure to Large-Value Stocks

This ETF is one of the best bargains in the U.S. large-value Morningstar Category.

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 Vanguard Value ETF (VTV) is a low-turnover, broadly diversified large-value strategy with a sizable cost advantage relative to its peers, making it one of the better options in its Morningstar Category. The fund uses metrics such as price/earnings to target stocks representing the cheaper and slower-growing half of the U.S. large-cap market and weights its holdings by market capitalization. This tilts the portfolio toward established firms such as  Johnson & Johnson (JNJ),  Exxon Mobil (XOM),  AT&T (T), and  Wells Fargo (WFC). This diversified portfolio may be a suitable core holding for long-term investors.

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. However, because most large-cap value stocks tend to be more widely owned and have more equity analyst coverage than their smaller counterparts, the market is less likely to significantly misprice them. The return advantage from tilting toward value stocks has historically been more pronounced among smaller-cap stocks, but larger-cap stocks tend to be less risky.

Alex Bryan has a position in the following securities mentioned above: VLUE. Find out about Morningstar’s editorial policies.