Is the Vanguard Value ETF the Best Ultra-Low-Cost Fund for Generating Passive Income?
Collecting passive income from stocks is a simple and effective way to participate in the market without having the return based solely on stock prices going up.
Exchange-traded funds (ETFs) that invest in dividend stocks provide the added benefit of diversification, making them solid options for investors looking to spread out risk across dozens or even hundreds of different names.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
The Vanguard Value ETF (NYSEMKT: VTV) is a massive ETF with $195 billion in net assets. The fund's size allows investment management firm Vanguard to charge a mere 0.04% expense ratio, or just 40 cents for every $1,000 invested.
Here's why the Vanguard Value ETF is a good choice for generating passive income from industry-leading companies.
No "Magnificent Seven" exposure
The key difference between the Vanguard Value ETF and a fund that tracks a major index, like the Vanguard S&P 500 ETF (NYSEMKT: VOO), is that the Vanguard Value ETF does not contain any "Magnificent Seven" companies.
The "Magnificent Seven" are seven major tech-focused companies -- Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla. Combined, these companies make up 31.2% of the Vanguard S&P 500 ETF. But all seven stocks are down big in 2025 and are underperforming the S&P 500.
VTV data by YCharts
With the exception of Broadcom, the largest holdings in the Vanguard Value ETF aren't from tech-focused sectors. Rather, they are financial leaders like Berkshire Hathaway and JPMorgan Chase, energy giants like ExxonMobil, Healthcare behemoths like UnitedHealth Group, Johnson & Johnson, and AbbVie, consumer staples companies like Walmart and Procter & Gamble, and consumer discretionary companies like Home Depot.
Vanguard Value ETF
Vanguard S&P 500 ETF
Company
Weighting
Company
Weighting
Berkshire Hathaway
4.2%
Apple
7.2%
JPMorgan Chase
3.3%
Nvidia
6.1%
ExxonMobil
2.2%
Microsoft
5.9%
Broadcom
2.1%
Amazon
3.9%
UnitedHealth Group
1.9%
Alphabet
3.6%
Walmart
1.9%
Meta Platforms
2.9%
Procter & Gamble
1.8%
Berkshire Hathaway
1.9%
Johnson & Johnson
1.8%
Broadcom
1.6%
Home Depot
1.7%
Tesla
1.6%
AbbVie
1.6%
JPMorgan Chase
1.5%
Data source: Vanguard.
Combined, the top 10 holdings in the Vanguard Value ETF make up 22.5% of the fund compared to 36.2% for the top 10 holdings in the Vanguard S&P 500 ETF.
A quality yield at a good value
Compared to the S&P 500, the Vanguard Value ETF has less exposure to technology and consumer discretionary but outsized exposure to financials, healthcare, industrials, consumer staples, energy, utilities, and real estate. Many companies in these sectors pay dividends and are valued more for their current earnings than their potential growth.
During times of uncertainty and stock market sell-offs, investors may gravitate toward proven companies and pay less for companies that need to grow into their valuations. The Vanguard Value ETF is chock-full of companies that can still produce strong earnings even during a downturn and support their growing dividend payments.
The Vanguard Value ETF sports a 2.2% yield and a mere 18.8 price-to-earnings (P/E) ratio compared to a 1.2% yield and pricier 23.8 P/E ratio for the Vanguard S&P 500 ETF.
A plug-and-play option for value investors
There are plenty of ETFs and individual stocks that yield considerably more than the Vanguard Value ETF. But the fund is arguably one of the best buys for folks looking to invest in quality dividend-paying companies rather than get the most yield.
It's important to remember that yield is only as reliable as the company paying it. A stock may have a high yield on paper, but the yield isn't reliable if the underlying business isn't growing or has a poor balance sheet. In contrast, top holdings in the Vanguard Value ETF have multidecade streaks of increasing their payouts year after year.
Add it all up, and the Vanguard Value ETF is a great choice for folks looking for diversification and a steady source of passive income regardless of stock prices.
Don't miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this.
On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves:
Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $244,570!*
Apple: if you invested $1,000 when we doubled down in 2008, you'd have $35,715!*
Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $461,558!*
Right now, we're issuing 'Double Down' alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of April 5, 2025
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Alphabet, Amazon, Apple, Berkshire Hathaway, Home Depot, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Value ETF, Vanguard S&P 500 ETF, and Walmart. The Motley Fool recommends Broadcom, Johnson & Johnson, and UnitedHealth Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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