We all know what exchange-traded funds (ETFs) are and how they work. Large-cap value ETFs are a group of ETFs that invest in large-cap stocks – but not just any large-cap stocks. The stocks in these funds’ portfolios exhibit value characteristics, either by being less expensive or slow growing.
Today, we will discuss value investing using large-cap value ETFs as investment vehicles. Who should read this? New and experienced investors looking to understand value investing and/or expose their portfolios to large-cap stocks in the current market.
So, if that is you, you are at the right place at the right time.
- The six best large cap value ETFs are RPV, VOOV, VTV, VLUE, IVLU, and SCHV. They include two each from Vanguard and iShares by BlackRock.
- All of these ETFs track different indexes, provide broad diversification, and attract very reasonable fees.
- As always, I have picked out the major takeaways from this article. You should skim through it if you do not have enough time to read the whole piece.
- Value investing means investing in securities/stocks whose current market price is lower than their intrinsic value, i.e., stocks/securities with value characteristics.
- Investors who engage in value investing are called value investors. Value investors focus more on income than capital appreciation.
- With large-cap value ETFs, investors can access large-cap-sized securities with value characteristics.
- There are about 30 large-cap value equities ETFs trading in the current market, from which I have shortlisted the best six.
- Choosing suitable funds from the list will depend on your investment goals and preferences.
Introduction to Value Investing
Understanding what large-cap value stocks can be tricky without any knowledge of value investing. Investopedia says, “value investing is an investment strategy that involves picking stocks that appear to be trading for less their intrinsic or book value.”
Now you may want to ask what intrinsic value is. In investing terms, intrinsic value is the perceived value of a stock. It helps to determine if a stock is overvalued or undervalued compared to the value of its assets or vital financial metrics like cash flow, earnings, or revenue.
Value investors are often inspired by the need to get the best deals possible. Identifying a mismatch between the current price and the actual worth of a stock opens the door for a potential increase in share price, which will be required to achieve the higher intrinsic value of the stock. Purchasing stocks below their inherent value also provides a margin of safety.
Value Investing With Large Cap Value Stocks
There are different value investing strategies—using large-cap value stocks is one. Large-cap stocks are stocks found in 70% of the capitalization of the U.S. equity market. Linking this to value investing, large-cap value stocks are large-cap stocks with value characteristics. Value, in this case, is often defined as low valuations, i.e., low price ratios and high dividend yields, and slow growth, i.e., low rate of growth for earnings, sales, book value, and cash flow.
Investors can invest in large-cap value stocks through large-cap value ETFs. Each large-cap value ETF is designed to invest in a group of large-cap stocks that are perceived to have value characteristics as described above. Unlike individual stocks, these ETFs offer more diversification and reduced risk by investing in dozens or hundreds of value-priced equities at once.
Best Large Cap Value ETFs For You
Now to the main business; let’s look at some of the best large value funds you can choose from:
1. Schwab U.S. Large-Cap Value ETF (SCHV)
The investment objective of the Schwab U.S. Large-Cap Value ETF (SCHV) is to track the total returns of the Dow Jones U.S. Large-Cap Value Total Stock Index. Therefore, it provides investors easy access to large-cap domestic equities with value-style characteristics.
SCHV invests 99.9% of its assets into stocks and 56.44% into stocks with more than a $70,000 million market capitalization. The biggest sectors in its portfolio are Financials, Healthcare, Industrials, Information Technology, and Consumer Staples.
SCHV has returned about 11% since inception and 8.49% in the previous three years. With total net assets of about $9.5 billion and over 500 holdings, this fund is one of the biggest on this list.
The expense ratio is 0.40%.
As the name suggests, iShares MSCI Intl Value Factor ETF (IVLU) offers exposure to the stocks of developed international companies with value fundamentals. It is designed to track the investment performance of the MSCI World ex USA Enhanced Value Index. This index comprises a blend of non-US large- and mid-cap stocks of relatively lower valuations.
The biggest regions in IVLU’s portfolio include Japan, the United Kingdom, France, and Germany. Across these regions, it focuses more on the Financial, Industrials, Healthcare, Consumer Discretionary, and Consumer Staples sectors.
There are 348 holdings in IVLU’s portfolio, with the top 10 accounting for 19.74% of the entire portfolio. It currently has about $1.3 billion in net assets funds in its coffers. IVLU has been a decent performer, turning 10.57% in total returns since inception and 7.88% in the last five.
It was launched in 2015 and currently has an expense ratio of 0.30%.
The iShares MSCI USA Value Factor ETF (VLUE) tracks the investment results of the MSCI USA Enhanced Value Index. This index consists of domestic large- and mid-capitalization stocks with lower valuations and value characteristics. VLUE is the domestic equivalent of IVLU.
Its portfolio has just 150 holdings, but the net asset funds amount to about $8.5 billion. Regarding sectors, VLUE focuses more on Information Technology, Healthcare, Consumer Discretionary, and Financials. The biggest names in the mix include AT&T INC, Intel Corporation Corp, CISCO Systems Inc, Ford Motor Co, General Motors, and others.
VLUE has produced a 9.17% return since its inception in April 2013. The five-year and three-year returns are 6.98% and 6.52%, respectively. VLUE is also cheaper than IVLU; its expense ratio is 0.15%.
4. Vanguard Value ETF (VTV)
This is the first of the two Vanguard funds on this list. The Vanguard Value Index Fund (VTV) tracks the performance of the CRSP US Large Cap Value Index. This large cap value index measures the investment return of large-cap value stocks using a full-replication method.
As a pure large-cap fund, VTV offers investors easy access to the largest value stocks in the country. The 344 holdings include names like Berkshire Hathaway, United Health Group, Johnson & Johnson, Exxon Mobil Corp, and JPMorgan Chase & Co, among others. VTV invests mainly in Health care (20.60%), Financials (18.80%), and Industrials (13.40%).
VTV has rewarded investors with a 7.64% average annual total return since its inception in 2004. The previous five and three years have returned 8.54% and 8.01%, respectively.
5. Vanguard S&P 500 Value Index Fund ETF (VOOV)
The second Vanguard fund on the list is the Vanguard S&P 500 Value Index Fund (VOOV) ETF. It is a domestic large-value ETF that invests in the S&P 500 Value Index stocks, which doubles as its underlying index. Investors looking to get the best of the entire U.S. value stock returns will find VOOV a good fit.
Investing in the value companies in the S&P 500, VOOV has returned 10.54% since its inception in 2010. The fund has also returned 7.55% and 7.46% in the previous five and three years, respectively (after taxes). While it is a decent performer, VTV has the better numbers.
Like VTV, the biggest sectors in VOOV’s portfolio are Healthcare, Financials, Industrials, Information Technology, and Consumer Staples. It currently has 447 stocks in its holdings and $3.1 billion worth of total net assets. The fund’s expense ratio is 0.10%.
6. Invesco S&P 500® Pure Value ETF (RPV)
The final entry on my list of the top large-cap value ETFs is Invesco’s issued pure value ETF (RPV). The fund is based on the S&P 500 Pure Value Index, investing 90% of its total assets in the stocks of this index, which comprises 41.87% of mid-cap value stocks, 32.87% of large-cap value stocks, 13.77% of mid-cap blend stocks, and 8.99% of large-cap blend stocks. So, if you prefer value investing without the limitation to only large-cap value, this will be a great fit.
RPV focuses on major sectors like Financials, Healthcare, Consumer Staples, Energy, and Materials. The biggest names in the 122-stock RPV’s portfolio include Cigna Corp, Marathon Petroleum, Berkshire Hathaway, Archer-Daniels-Midland, and Valero Energy Corp.
Regarding past performance, this fund has returned 8.34% since inception and 8.87% in the last three years. The expense ratio is 0.35%.
Value investing through large-cap value stocks can be a safe and rewarding investing move. These stocks allow investors to tap into gems with lower valuations than their intrinsic value. If you want the best deals possible, go for stocks whose current prices do not reflect their actual worth.
Choosing the Most Suitable Value ETF for Your Portfolio
More than understanding how value investing works using large-cap value stocks as investment vehicles, it is essential to know which ETFs to pick from the long list of options out there. That is where the outlined ETFs in this article come in.
While it is practically impossible to include all six discussed ETFs in your portfolio, working with funds that reflect your investment goals and methods is advisable. Consider factors like underlying indices, diversification, distributions, taxes, and fees.
Check our website for more informative asset comparisons and portfolio reviews if you find this review helpful.