VONV: A Low-Cost Large Cap Value ETF Struggling to Keep Pace in a High-Yield Environment

The Vanguard Russell 1000 Value ETF (VONV) has long been praised for its low expense ratio of 0.07%, making it one of the most cost-effective options in the large-cap value ETF space [2]. However, in a high-yield environment dominated by strong performance from dividend-focused and broader value strategies, VONV’s niche focus on Russell 1000 Value constituents has left it trailing behind alternatives like the Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Value ETF (VTV). This underperformance highlights the critical role of portfolio quality, sector exposure, and index construction in differentiating value ETFs.

Performance Gaps and Index Construction

VONV’s 3.77% year-to-date return as of June 2025 lags behind VTV’s 9.45% and SCHD’s 4.13% [1]. This gap stems from VONV’s unique index methodology, which emphasizes companies with lower price-to-book ratios and slower growth rates, often skewing toward smaller-cap stocks within the Russell 1000 Value Index [4]. In contrast, VTV’s CRSP U.S. Large Cap Value Index and SCHD’s Dow Jones U.S. Dividend 100 Index prioritize larger, more stable companies with consistent dividend growth [2]. The Vanguard Capital Markets Model forecasts further underscore this trend, predicting U.S. value stocks (like those in VONV) will deliver 3.3%–5.3% annualized returns over the next decade, below the historical average for equities [3].

Sector Exposure and Portfolio Quality

VONV’s heavy allocation to Financials (23.20%) and its moderate exposure to Industrials and Healthcare [5] contrast with SCHD’s focus on high-dividend-paying sectors like Healthcare and Financial Services [3]. While Financials have historically performed well in rising rate environments, VONV’s smaller-cap tilt and lower dividend yield (2.11%) compared to SCHD’s 3.67% [1] have limited its appeal to income-focused investors. Meanwhile, VTV’s 27.67% weighting in Financials and broader diversification across traditional value sectors have helped it outperform [1].

Portfolio quality metrics also reveal VONV’s challenges. Though the ETF has a Morningstar Medalist Rating of Gold [4], its Sharpe Ratio (0.62) trails SCHD’s 0.23 [3], indicating weaker risk-adjusted returns. This discrepancy reflects SCHD’s concentration in mature, high-quality dividend growers, which have shown resilience during market volatility [6]. VONV’s higher exposure to mid-cap stocks, meanwhile, introduces structural risks, including weaker profitability and greater sensitivity to trade policy shifts [1].

High-Yield Environment and Investor Implications

In a high-yield environment, investors increasingly favor ETFs with consistent income streams and lower volatility. SCHD’s 13.74% five-year dividend growth rate [6] and VTV’s lower expense ratio (0.04%) [2] position them as superior alternatives to VONV. While VONV’s 0.07% fee is still competitive, its performance has been hampered by its index’s smaller-cap bias and limited sector diversification. For investors seeking value exposure, the choice between these ETFs hinges on balancing cost, dividend yield, and sector-specific risks.

Conclusion

VONV remains a compelling option for cost-conscious investors, but its underperformance in a high-yield environment underscores the importance of index construction and sector alignment. As value stocks face structural headwinds—particularly for smaller-cap names—ETFs like SCHD and VTV, with their focus on large-cap dividends and broader value sectors, may better serve investors seeking both income and capital preservation. For VONV to close the gap, it would need a strategic shift toward larger-cap constituents or a more aggressive tilt toward high-dividend sectors—a move that could dilute its current value-oriented identity.

Source:
[1] VTV vs. SCHD — ETF Comparison Tool [https://portfolioslab.com/tools/stock-comparison/VTV/SCHD]
[2] SCHD vs VTV | ETF Performance Comparison Tool – Composer [https://www.composer.trade/etf-comparisons/SCHD-VTV]
[3] Vanguard Capital Markets Model® forecasts [https://corporate.vanguard.com/content/corporatesite/us/en/corp/vemo/vemo-return-forecasts.html]
[4] VONV – Vanguard Russell 1000 Value ETF [https://www.morningstar.com/etfs/xnas/vonv/quote]
[5] Should Vanguard Russell 1000 Value ETF (VONV) Be on ... [https://www.nasdaq.com/articles/should-vanguard-russell-1000-value-etf-vonv-be-your-investing-radar-4]
[6] SCHD: A Base For This 3% Yielding, 3 ETF Portfolio [https://seekingalpha.com/article/4572839-schd-base-for-this-3-percent-yielding-3-etf-portfolio]