The S&P 500 is in positive territory for the year as of Monday’s close — up over 1%. But it has been a volatile year, and that’s putting it lightly. In April, with the advent of reciprocal tariffs, the index plummeted and was down more than 15% since the start of the year.
For investors, the big question is how the market performs from here on out. Will it continue to rally, or will tariffs chip away at earnings and put pressure on stocks yet again? Trying to predict what will happen is incredibly difficult, which is why timing the market is risky and usually not worth your time, as you can miss out on gains by doing so.
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But if you are worried about the market or just want a safe place to put your money, either for the short term or the long term, then there’s one exchange-traded fund (ETF) you should consider right now: the Vanguard Value Index Fund ETF (NYSEMKT: VTV).
Image source: Getty Images.
Focusing on value is always a good strategy
The Vanguard Value Index Fund ETF invests in value stocks, which can be an ideal option right now. A big risk for investors these days is getting caught up with stocks that have gone up sharply in value. The ETF averages a price-to-earnings multiple of just over 18, which is lower than the current S&P 500 average of 24.
At elevated valuations, the risk for a correction is high. Consider that while the S&P 500 was down as much as 15% this year, the ARK Innovation ETF, which focuses on growth stocks, fared even worse; at its low point, its year-to-date losses were nearly 29%.
Growth stocks may have more upside when times are good, but when times aren’t so good, they can quickly nosedive. For investors who don’t want that kind of volatility, value stocks can be much safer options. By comparison, the Vanguard Value fund’s lowest point this year was a year-to-date loss of 9%. While it won’t let you avoid a downturn in the market, it can help shield your portfolio from deeper losses in the worst of times.
The fund has strong diversification and modest exposure to tech
An important feature of the ETF is that just 6% of its portfolio is in tech stocks. The bulk of its position is in less volatile and more resilient sectors, including financials (23%), healthcare (16%), and industrials (15%). Berkshire Hathaway, JPMorgan Chase, and ExxonMobil are the top three stocks in the fund, making up a little over 9% of the Vanguard’s entire portfolio. That’s good news for investors because it means limited exposure to any one stock.
There are 331 stocks in the ETF, which allows the fund to spread out its position. The S&P 500 is highly dependent on the most valuable stocks in the market.
Over the past decade, the Vanguard ETF has, however, underperformed the broader index, based on total returns (which include dividends).
^SPX data by YCharts
Why the fund could outperform the market
While the above chart may look concerning, it’s not surprising given how fast high-growth stocks have been soaring for much of the past five years. While 2022 was a bad year, the market has done well overall. In each of the past two years, the S&P 500 generated gains in excess of 20%, which isn’t common, its long-run average being around 10%.
When growth stocks are hot, the difference in performance between the S&P 500 and this value-focused Vanguard fund will be steep. But in the above chart you can see that the gap wasn’t nearly as significant before 2020 as it has become.
Nowadays, with valuations back at elevated levels, there could be some rotation into more value-oriented stocks, especially as investors grow concerned about where the market is headed. And that could make the Vanguard Value Index Fund ETF a market beater in the years ahead.
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JPMorgan Chase is an advertising partner of Motley Fool Money. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, and Vanguard Index Funds-Vanguard Value ETF. The Motley Fool has a disclosure policy.
