Value Investing in Large-Cap Equities: Re-Rating Potential in Undervalued Sectors

Value investing has long been a cornerstone of prudent portfolio management, but its appeal has surged in recent years as growth stocks have faced valuation corrections. The SPDR S&P 1500 Value Tilt ETF (VLU), which tracks the S&P 1500 Low Valuation Tilt Index, exemplifies this strategy by overweighting stocks with low price-to-book, price-to-earnings, and other valuation metrics as shown in the ETF Database listing. As of September 2025, VLU's sector allocations reveal a concentration in financial services (18.03%), technology (13.56%), consumer discretionary (11.53%), and healthcare (10.24%), which are detailed in StockAnalysis's holdings list. These allocations highlight undervalued sectors with re-rating potential, particularly as macroeconomic conditions evolve.

Strategic Positioning of VLU

VLU's methodology tilts toward companies with strong value characteristics, including those in sectors historically prone to underperformance. Financial services, for instance, constitutes the largest single sector in the fund. This weighting aligns with broader market trends: energy and financials are rated "Marketperform" by the Schwab sector outlook as of June 2025, reflecting cautious optimism amid trade policy uncertainty. Meanwhile, healthcare-another significant allocation in VLU-has lagged the broader market by over 25 percentage points in the past year due to post-election volatility and weak performance in biopharma and managed-care stocks, according to a Morningstar article. Yet, the sector is now trading at a median discount to fair value of over 10%, suggesting potential for a re-rating if fundamentals stabilize.

Re-Rating Potential in Key Sectors

Financials: The financial sector's undervaluation is partly due to regulatory pressures and low interest rates, but rising rates and a resilient economy have bolstered margins for banks and insurers. JPMorgan Chase and Berkshire Hathaway, two of VLU's top holdings, have benefited from this environment, as noted by Morningstar. If policymakers maintain rate stability, financials could see further gains.

Healthcare: Despite its challenges, healthcare's long-term demand is inelastic, making it a compelling value play. The sector's 10% discount to fair value-excluding overvalued medical distributors-suggests room for correction (per the Morningstar article). Innovations in telehealth (now 11% of outpatient visits) and AI-driven operational efficiency could catalyze a re-rating, and these trends are reflected in VLU's holdings list on StockAnalysis.

Energy: While not a top allocation in VLU, energy stocks remain sensitive to oil prices and geopolitical risks. However, exploration and production subsectors are currently 7% undervalued, per Morningstar's analysis. A rebound in energy prices or a shift in trade policy could unlock value here.

Historical Context and Market Outlook

From 2020 to 2025, healthcare has underperformed the broader market, yet its fundamentals remain robust. Revenue growth in health services and specialty pharmacy sectors is projected at 8% CAGR through 2028, driven by digital transformation and new therapies, according to the Schwab sector outlook. Similarly, financials have navigated a challenging rate environment with resilience, supported by strong balance sheets. These trends suggest that VLU's sector allocations are positioned to benefit from a re-rating as market conditions normalize.

Conclusion

The SPDR S&P 1500 Value Tilt ETF (VLU) offers a diversified approach to value investing, with a strategic tilt toward sectors like financials, healthcare, and technology. While these sectors have faced headwinds, their current undervaluation-relative to growth peers-presents compelling opportunities. As macroeconomic clarity emerges and sector-specific catalysts materialize, VLU's portfolio is well-positioned to capitalize on re-rating potential, making it a worthy consideration for investors seeking long-term value.