Vanguard Value ETF (VTV) Outperforms Broad Market Index Amid Strong H1 2025 Earnings

The Vanguard Value ETF (VTV) has emerged as a compelling asset in diversified portfolios during the first half of 2025, despite mixed comparisons to broad market indices like the S&P 500. While VTV’s year-to-date (YTD) return of 9.36% trails behind the S&P 500 ETFs (SPY at 10.99% and VOO at 11.05%) [6], its strategic value tilt and risk-adjusted benefits position it as a critical component for investors seeking balanced, long-term growth. This analysis explores how VTV’s performance aligns with broader market dynamics and underscores the advantages of allocating to value equity in a diversified portfolio.

VTV’s Performance in H1 2025: A Nuanced Picture

VTV’s 9.36% YTD return as of August 27, 2025, outperformed its Large Value category average of 6.00% [5], a testament to its low-cost, market-cap-weighted strategy. However, this figure lags behind the S&P 500’s growth-driven momentum, which was fueled by AI-related stocks like Microsoft and NVIDIA [1]. The disparity highlights a key trend: growth stocks dominated H1 2025, with the S&P 500 Growth Index returning 8.9% compared to the Value Index’s 3.3% [3].

Yet, VTV’s underperformance relative to the S&P 500 ETFs masks a critical nuance. In Q1 2025, VTV outperformed the Vanguard Total Stock Market Index Fund, which recorded a -4.83% return [4]. This resilience, coupled with VTV’s higher dividend yield (2.11% vs. SPY’s 1.11%) [1], suggests that value stocks provided defensive strength during market volatility. The ETF’s lower valuation (19.6 P/E ratio vs. 27.2 for S&P 500 ETFs) further supports its appeal as a long-term investment [3].

Strategic Allocation to Value Equity: Balancing Risk and Reward

The case for value equity in diversified portfolios has gained traction in 2025, driven by shifting market dynamics. LPL Research and Morningstar both advocate for increased exposure to value and emerging markets, citing stretched valuations in growth stocks [2]. VTV’s inclusion in such strategies offers dual benefits:

1. Diversification Across Cycles: Value stocks, represented by VTV, have historically outperformed during periods of economic uncertainty. In Q1 2025, the Russell 1000 Value Index rose 2.1% while the Growth Index fell 10.0% [3], illustrating the cyclical nature of market leadership.
2. Risk Mitigation: While VTV’s Sharpe ratio (0.63) is lower than SPY’s 0.85 [1], its higher dividend yield and lower volatility compared to the S&P 500’s top-heavy composition provide a buffer against downside risk [3].

Reconciling Underperformance with Strategic Value

Critics may question VTV’s role in a portfolio given its 10-year annualized return of 11.50%, which trails SPY’s 14.43% [6]. However, this metric overlooks the strategic advantages of value equity. For instance, VTV’s maximum drawdown of -59.27% [1]—while severe—reflects its exposure to cyclical sectors, which can rebound strongly in recovery phases. Moreover, the ETF’s low expense ratio (0.04%) and broad diversification across 500+ stocks [2] make it an efficient vehicle for capturing value premiums.

Conclusion: A Case for Strategic Inclusion

While VTV did not outperform the S&P 500 ETFs in absolute returns during H1 2025, its role in a diversified portfolio remains irreplaceable. The ETF’s value tilt, defensive characteristics, and alignment with long-term market cycles make it a strategic asset for investors seeking to balance growth and risk. As LPL Research and Vanguard emphasize, the “higher-for-longer” interest rate environment favors value and global diversification [2]. For those willing to tolerate short-term underperformance, VTV offers a compelling path to resilient, income-generating growth.

Source:
[1] VTV vs. SPY — ETF Comparison Tool [https://portfolioslab.com/tools/stock-comparison/VTV/SPY]
[2] Strategic Asset Allocation 2025: A 3-to-5-Year Perspective [https://www.lpl.com/research/blog/strategic-asset-allocation-2025-a-3-to-5-year-perspective-of-markets.html]
[3] Q1 2025 Demonstrated The Benefits Of A Diversified Portfolio [https://zacksim.com/blog/q1-2025-demonstrated-the-benefits-of-a-diversified-portfolio/]
[4] Index Funds Quarterly Review Q1 2025 - Vanguard Institutional [https://institutional.vanguard.com/insights-and-research/report/quarterly-reports/index-funds-quarterly-review-q1-2025.html]
[5] Vanguard Value Index Fund ETF Shares (VTV) Performance [https://finance.yahoo.com/quote/VTV/performance/]
[6] VTV vs. VOO — ETF Comparison Tool [https://portfolioslab.com/tools/stock-comparison/VTV/VOO]