Vanguard’s VTV Is Pricier Than You’re Used To

The fund’s price is elevated compared to its past, but the strong earnings growth of its biggest holdings makes a strong case for the premium.

The five largest holdings in the Vanguard Value ETF (VTV) make up 14.2% of the fund, a reminder that when you buy a broad index, you are still making a concentrated purchase in a few key companies. So, with the fund having returned +27.2% over the trailing twelve months, it’s fair to ask: is the price you pay today for this basket of stocks justified by what’s actually inside it?

A Look in the Rear-View Mirror Shows a Higher Price

On the surface, you are paying more for the fund’s assets than investors have recently. The fund’s trailing price-to-earnings ratio is 22.1. For context, over the last five calendar year-ends, that same P/E ratio has averaged 18.5. Today’s price is about 19% above that five-year average, a noticeable premium. Judged against its own recent history, the fund looks expensive.

The Engine Driving That Higher Price Tag

But a trailing multiple only tells you where a company, or a fund, has been. The more important question is whether the earnings are growing fast enough to justify paying up. Here, the story gets more interesting. The largest holdings in the fund have been growing earnings briskly; weighted by their size in the fund, their earnings per share grew about 21% over the past year. Looking forward, the picture remains solid. The consensus forward price-to-earnings ratio for the fund is about 16.3. That sharp drop from the trailing P/E of 22.1 happens because analysts expect the aggregate earnings of the fund’s holdings to grow about 10% over the coming year. In short, the premium you’re paying seems to be earned by the growth happening under the hood, driven by key holdings like Micron Technology (MU) at 4.2% of the fund and JPMorgan Chase (JPM) at 2.9%.

The One Number That Argues For Patience

There is a catch, however, and it comes down to opportunity cost. The aggregate earnings yield of the fund’s holdings is 4.5%. At the same time, a 10-year US Treasury yields 4.4%. That means your potential reward for taking on stock market risk is just 0.1 percentage points above the risk-free Treasury yield. This is a very thin cushion. If the expected earnings growth of 10% doesn’t materialize, or if the broader market decides it needs a higher premium for taking risk, there is little margin for error in today’s price.

What To Decide Before You Own the Basket

So, is today’s price justified? The data suggests the premium valuation is largely supported by strong underlying earnings growth. But that growth has to continue to make the math work, especially when the risk premium over safe government bonds is so slim. Owning an index fund like the Vanguard Value ETF means you own all 331 positions at the price the market sets today. You can’t pick and choose. For an investor, the key variable to watch is whether that consensus earnings growth comes through. If it does, today’s price may look reasonable in hindsight. If it falters, that thin risk premium will feel very small indeed.

How Do You Choose Among Nearly 200 ETFs?

VTV is paying up for fast-growing holdings. The real question is whether every fund charging a premium has earned it. Owning an ETF is one of the simplest ways to buy a whole market, sector, or theme in a single ticker, and that is a genuinely sensible way to invest. The hard part is not whether to use ETFs, but which one: close to two hundred equity ETFs compete for the same dollar, and two funds promising nearly the same exposure can carry very different price tags for what is inside them.

Our ETF Valuation and Performance Scorecard ranks the whole equity universe on exactly this test, from risk-adjusted return down to how each fund’s price compares with its own history, so the genuine values are separate from the funds quietly paying up. And if you would rather not sort through it at all, the Trefis High Quality (HQ) Portfolio takes the systematic route a level deeper than any index: 30 individually screened names, rules-based and re-balanced, with a record of outpacing a benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000.