The S&P 500 (^GSPC -1.71%) is arguably the inventory market’s most essential index. It tracks the five hundred largest U.S. corporations available on the market, and it has change into the benchmark for U.S. and worldwide buyers.
Whereas the S&P 500 itself is pretty broad in fashion, variations of the index lean towards particular investing types. A type of is the S&P 500 Worth Index, which focuses on the worth corporations throughout the S&P 500. Though it might not expertise hypergrowth, it may very well be an ideal possibility as many start to fret in regards to the excessive valuations of many progress shares.
When you’ve got $500 to take a position and are already uncovered to the broader market through an S&P 500 exchange-traded fund (ETF), now may very well be a very good time to lean on extra of the worth shares throughout the index by investing within the Vanguard S&P 500 Worth ETF (VOOV -0.97%).
VOOV Complete Return Degree information by YCharts.
How does the ETF outline “worth”?
Whether or not or not a inventory is taken into account a worth is considerably subjective. To take a look at it extra objectively, Vanguard defines worth by trying on the following three metrics: Worth-to-book (P/B) ratio, price-to-earnings (P/E) ratio, and price-to-sales (P/S) ratio. This is a fast rundown of what every ratio measures:
- P/B ratio: An organization’s market worth to its guide worth (belongings minus liabilities on its stability sheet).
- P/E ratio: How a lot you are paying per $1 of an organization’s earnings.
- P/S ratio: How a lot you are paying per $1 of an organization’s income.
The decrease the above ratios are, the “cheaper” a inventory is seen as being. For perspective, under is how the Worth ETF’s P/B ratio and P/E ratio evaluate to the usual S&P 500’s ratios (primarily based on the Vanguard S&P 500 ETF (VOO -1.70%)):
| Metric | S&P 500 Worth | S&P 500 Normal |
|---|---|---|
| P/B ratio | 3.3 | 5.0 |
| P/E ratio | 22.4 | 27.5 |
Knowledge supply: Vanguard. Numbers as of Jan. 31, 2025.
The Worth ETF’s numbers aren’t precisely low, nevertheless it’s a noticeable sufficient distinction from the usual S&P 500.
This ETF depends a lot much less on the tech sector
One subject raised with the usual S&P 500 is how a lot of it’s made up of the tech sector (this is because of it being market cap weighted).
Fortunately, the worth nature of the Worth ETF means it is extra evenly unfold throughout sectors. Tech continues to be essentially the most represented sector, nevertheless it’s extra balanced, as proven within the desk under.
| Sector | S&P 500 Worth | S&P 500 Normal |
|---|---|---|
| Communication providers | 3.7% | 10% |
| Client discretionary | 9.1% | 11.4% |
| Client staples | 7.7% | 5.5% |
| Vitality | 5.9% | 3.2% |
| Financials | 15.9% | 14.1% |
| Well being care | 15.6% | 10.5% |
| Industrials | 8.3% | 8.3% |
| Data know-how | 23.7% | 30.7% |
| Supplies | 3.5% | 1.9% |
| Actual property | 3% | 2.1% |
| Utilities | 3.6% | 2.3% |
Knowledge supply: Vanguard. Percentages as of Jan. 31, 2025.
The excellent news is that the Worth ETF nonetheless exposes you to flourishing tech giants like Apple, Microsoft, and Amazon (its prime three holdings). Nonetheless, its prime holdings are rounded out by corporations comparable to UnitedHealth Group, ExxonMobil, Procter & Gamble, and JPMorgan Chase.
The Worth ETF will nonetheless be influenced by the tech sector’s success (or lack thereof), however different sectors are there to tug extra of the load.
The S&P 500 Worth ETF ought to be one piece of the puzzle
I would not have the Worth ETF as my main S&P 500 fund or the inspiration of my portfolio, however it may be an ideal complement for these already invested in the usual S&P 500 or different progress shares.
There is no solution to predict how the inventory market will carry out, but when there’s a correction with the excessive valuations of many growth-focused shares, this ETF can present some stability or safety towards main drops. That does not imply this ETF is correction- or downturn-proof; it simply means it might maintain up higher throughout market down intervals.
A $500 funding may very well be an ideal begin to serving to you add some worth publicity to your inventory portfolio.
John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. JPMorgan Chase is an promoting companion of Motley Idiot Cash. Stefon Walters has positions in Apple, Microsoft, and Vanguard S&P 500 ETF. The Motley Idiot has positions in and recommends Amazon, Apple, JPMorgan Chase, Microsoft, and Vanguard S&P 500 ETF. The Motley Idiot recommends UnitedHealth Group and recommends the next choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
