Vanguard U.S. Value Factor ETF Shares VFVA

Vanguard US Value Factor ETF is a deep-value strategy that experiences higher highs and lower lows than most, but its broad reach and low fee should tip the scales in its long-term favor.

This exchange-traded fund places a pronounced bet on the value factor. The systematic strategy absorbs the cheapest stocks from the large-, mid-, and small-cap markets and weights them based on the strength of their value characteristics. That double-dip in value breeds an exceptionally cheap portfolio. Its price/earnings and price/book ratios, traditional measures of value, typically rank among the cheapest in the mid-cap value category.

Selecting and weighting stocks by their valuations differentiates this fund from the Russell Mid Cap Value, its category benchmark, and other investments that tie portfolio weight to market capitalization. The fund’s deep-value orientation doesn't stem from concentrated bets. It has historically held between 550 and 825 holdings, while its 10 largest positions represented only 5% to 10% of the portfolio.

The fund takes on avoidable risks elsewhere. It screens out real estate and utilities stocks. Those sectors have represented between 15% and 20% of the Russell Mid Cap Value in recent years. The portfolio has typically filled the void by overweighting cyclical stocks such as those from the financials and energy sectors, which can add to its risk. Moreover, the strategy does little to protect itself from stocks that are cheap for good reasons. Going all-in on value leaves it with worse profitability and financial health metrics than the category index.

Its deep-value orientation amps up its risk/reward profile. The fund has thrived when value rallied, like 2021 when its 37% gain ranked among the category’s top decile. But the drawdowns can sting. The fund slid 7.5 percentage points further than the Russell Mid Cap Value during 2020’s first quarter, which illustrates the perils of its aggressive approach and the sector biases that come with it.

This deep-value ETF can excel in the right environments, but it takes on a lot of additional risks that can dent its risk-adjusted return. It earns an Average Process Pillar rating.

Vanguard's managers start with all stocks in the Russell 3000 and remove names that fail to meet basic liquidity requirements. They cut those that rank in the highest quintile of short interest, a tweak the fund introduced several years after its launch to avoid the most distressed companies. Utilities get removed for their limited upside. Likewise, they punt REITs from the portfolio because the team believes factor investing doesn’t work well in the real estate sector.

The team splits the remaining stocks into large-, mid-, and small-cap buckets and ranks them based on their value characteristics. Book value/price, forward earnings/price, and operating cash flows/price ratios equally determine the composite value score. The managers select the highest-ranked stocks from each segment until the portfolio holds one-third of each bucket’s market capitalization. Stocks that make the cut are weighted by their composite value score. Disconnecting size from weight makes this portfolio look quite different from its parent index and fellow mid-cap value funds. But it cranks up exposure to the value factor and produces a broad portfolio that avoids single-stock risks—a fair tradeoff for investors willing to stomach its volatility. The managers make trades as needed to keep the ETF's value orientation in line with its target.

Selecting and weighting stocks by their value traits pushes this portfolio to the cheapest edge of the mid-cap value category. Its price/earnings and price/book ratios typically land among the cheapest of its mid-value peer group. Companies that trade at steep discounts can have long runways, but they are usually cheap for a reason, and the short interest screen doesn't filter out every falling knife. Prioritizing these firms gives the fund a volatile profile.

This portfolio has little in common with its category or parent indexes. That is partially due to its deep-value orientation, which leads to lopsided sector biases. This fund excludes real estate and utilities stocks that normally represent 15% to 20% of the Russell Midcap Value. It fills the void with heavy allocations to the financials and energy sectors. Smaller companies also represent a larger chunk of this portfolio than the category index.

This strategy diversifies well despite its unique shape. It reliably spans well over 500 holdings, and the 10 largest rarely exceed 10% of assets. Avoiding concentration ensures that a handful of companies don't steer an outsize share of performance.

Vanguard’s Quantitative Equity Group has the research chops to evolve this strategy and the resources and experience to efficiently implement it, meriting a People Pillar rating of Above Average.

Scott Rodemer leads a five-person team tasked with executing and fine-tuning this systematic strategy. The team’s coding skills help it implement the strategy in a cost-efficient manner, while their investment expertise aids the research process.

Managers divide their time between portfolio management and research, fostering a practical understanding of market dynamics. It’s a fairly lean team that benefits from Vanguard's comprehensive support in capital markets, technology, and trading, allowing for a focused yet well-supported operation.

The team constantly monitors its portfolios’ factor exposures. It rebalances them when they start to decay, and trading costs are reasonable. Vanguard's practice of rotating portfolio managers through the group cultivates broad expertise and adaptability within the team.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

This fund has been a high-risk, high-reward ETF since hitting the market in February 2018. It outgained the Russell Midcap Value Index by 83 basis points annualized from that point through September 2025. That came with a lot of volatility, so its risk-adjusted return landed close to the index and the average of its category peers. Market rallies should be kind to this fund—especially when value stocks lead the charge—but it has struggled when its value tilt or sector bets don't pay off.

Holding this fund has been a whirlwind. It was 25% more volatile than the Russell 3000 from its inception through September 2025. A Jekyll-and-Hyde run in 2020 and 2021 contributed to those figures. Its 46.2% drawdown during the pandemic-fueled drawdown in early 2020 pushed it to the mid-value category's bottom quintile. After that, the ETF soared more than 130% from April 2020 through December 2021. That trounced the Russell 3000 by roughly 38 percentage points and ranked within the category's top decile.

Irrespective of the market's direction, this fund normally measures up well when value stocks are in favor. That's especially true when financials and energy set the tone. For example, the ETF finished 2022 in the mid-value category's top quintile after energy's standout performance helped it battle the bear market better than most.

Vanguard US Value Factor ETF's Prospectus Adjusted Expense Ratio is 0.13% per year. It places it in the cheapest quintile of the Morningstar US Fund Mid-Cap Value Category, where the median fee is 0.88% per year. This cost positioning translates into a Medalist Rating Price Score of 2.38, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.