The Smartest Vanguard ETF to Buy With $1,000 Right Now
Key Points
The S&P 500's record highs mask a lopsided market -- only about 20 of its 500 stocks are actually at all-time highs, with AI-linked megacaps doing all the heavy lifting.
The Vanguard Value ETF offers diversified exposure to large-cap value stocks trading at a discount, and just 8% tech exposure vs. the S&P 500's tech-heavy concentration.
The fund is positioned to benefit whether AI hype proves justified or fizzles out, giving investors a "win either way" opportunity and a 2% dividend yield.
- 10 stocks we like better than Vanguard Value ETF ›
There's something interesting going on in the stock market. The S&P 500 is hitting record high after record high, but of the 500 companies in the index, only about 20 are actually trading at their own all-time highs.
The high-flying AI-linked megacaps -- companies like Nvidia, Microsoft, and Meta -- are pushing the index higher while hundreds of individual stocks from less flashy parts of the economy are falling behind.
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I think it's a perfect time to diversify and broaden your exposure away from these AI names into more value-driven stocks. That's why, for my money, the smartest Vanguard exchange-traded fund at the moment is the Vanguard Value ETF (NYSEMKT: VTV).
What the Vanguard Value ETF actually holds
VTV tracks the CRSP U.S. Large Cap Value index -- a benchmark of 311 large-cap stocks selected for classic value characteristics like low price-to-earnings (P/E) and price-to-book (P/B) ratios. They're also largely from outside technology -- names like Berkshire Hathaway, JPMorgan, and ExxonMobil dominate. Here are the top five holdings:
| Stock | Weight |
|---|---|
| Berkshire Hathaway | 3.6% |
| JPMorgan Chase | 3% |
| ExxonMobil | 2.9% |
| Johnson & Johnson | 2.4% |
| Walmart | 2.2% |
Why the S&P 500 is riskier than it looks
If you own something like the Vanguard S&P 500 ETF, you've made a more lopsided bet than you may realize. The top 10 names in the S&P 500 now account for roughly 40% of the entire index. That's historically extreme. And they're all from a single area of the economy: technology.
Those tech firms have been driving the index higher, all based on the expectation that artificial intelligence will reshape the economy and generate massive profits for decades to come. That might prove correct. But at this point, it is still very much a bet; it's far from guaranteed.
VTV is cheaper than you might think
The Vanguard Value ETF trades at about 21 times earnings with a P/B value of roughly 3. The S&P 500 is significantly more expensive by both counts at the moment.
Now, these companies are no shlubs: The fund's holdings sport a 17% return on equity (ROE, an important measure of how efficiently a company turns capital into profit) and 9.5% earnings growth. These are healthy, profitable businesses. They're just not getting the AI premium.
And VTV also offers a 2% dividend yield. That's not a crazy amount, but it's about twice that of what you'd get from SPY.
A hedge that works in any AI scenario
If the AI trade turns out to be overhyped, if the massive capital expenditures don't translate into the profits Wall Street expects, the S&P 500 is going to take a hit. With more than a third of the index concentrated in the companies most exposed to AI, it will be a painful one. VTV, on the other hand, with just 8% tech exposure, would be far more insulated from a major correction.
Image source: Getty Images.
On the other hand, if AI plays out the way bulls hope and the technology does reshape the economy, these companies benefit too. Banks can process more transactions and cut costs while energy companies power more and more data centers. Healthcare companies become more efficient. Industrials optimize their supply chains. The list goes on. In other words, you win either way.
The bottom line
If you've got $1,000 to put to work today, I think the smartest move is to lean into the parts of the market that have been left behind in the AI gold rush rather than double down on a handful of names that are already priced for perfection.
VTV gives you 311 large-cap businesses trading at a discount to the broader market and is positioned to benefit whether the AI narrative plays out or not.
Should you buy stock in Vanguard Value ETF right now?
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JPMorgan Chase is an advertising partner of Motley Fool Money. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Vanguard S&P 500 ETF, Vanguard Value ETF, and Walmart. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
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