A sound investment process and strong management team underpin Vanguard Russell 1000 Value ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and an underweight in yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. The equity team managing the passive product drives the strategy's Above Average People Pillar rating. The strategy belongs to a top-notch firm that earns a High Parent Pillar rating. The firm, for example, has had a favorable lineup success ratio and overall reasonable fees.

Analyst Rating

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Exxon Mobil

JPMorgan Chase & Co

Johnson & Johnson

Procter & Gamble

Chevron

Cisco Systems

Walmart

Merck

Pfizer

The fund accurately captures the opportunity set available to its average category peer. Compared with its average peer, the fund is slightly overweight in communication services and real estate stocks and lightly underweight in technology stocks. The fund has historically traded at a similar valuation as its average peer. However, its average market cap is slightly lower owing to its broader reach, which improves diversification but may hurt performance when larger caps rally.

The fund does not strictly hold value stocks. It also holds names with higher valuations that don’t quite qualify as growth stocks. They can temper the fund’s value exposure and provide a modest buffer when the cheapest value stocks underperform. Companies like UnitedHealth Group UNH and newly undervalued META Platforms META fit this description. Additionally, this fund shares around a third of its portfolio with its sister iShares Russell 1000 Growth ETF IWF.

Like many of its large-value peers, the fund carries persistent sector biases versus the broader market. Compared with the Russell 1000 Index, the fund tilts toward financials and energy stocks while underweighting technology and healthcare stocks.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

Above Average

Process

Vanguard Russell 1000 Value Index Fund's strong equity team drives the strategy's Above Average People Pillar rating. There are two managers listed on the fund: Aurélie Denis, Nick Birkett. The team is inadequately equipped. Together, they average one years of portfolio management experience. Together, they manage a total of three strategies, with a Gold asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. The team has lacked continuity recently, with Walter Nejman leaving in the last five months, detracting from its rating. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

The Vanguard Group retains a High Parent rating. 

Mutual ownership, low costs, and a direct-to-investor playbook have helped spur Vanguard's leadership within the United States. Client service missteps notwithstanding, Vanguard over the past decade has grown its market share of U.S. open-end and exchange-traded fund assets at about a 5% annualized clip. At that rate, Vanguard's portion of the U.S. industry will cross 50% around 2035.

True, some competitors can now match or even undercut Vanguard on fees for broad market exposure. But Vanguard's burgeoning advice business could help it keep or even extend that lead. Through Digital Advisor and Personal Advisor Services, Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.

Vanguard is also using its advice business to expand overseas, but that's a work in progress. Of Vanguard's USD 7.6 trillion in global assets under management in March 2023, non-U.S. investors owned less than 10%, a figure that has changed little in recent years. Strategic shifts in China and other markets account for the slow pace, including returning money to institutions that had been layering on fees. Vanguard hopes to recoup that money and more by focusing on individual investors and the advisors who serve them. Provided Vanguard sticks to its playbook, its advantages should translate into success abroad, too.

High

Parent

Vanguard Russell 1000 Value ETF

VONV tracks an index of value stocks selected from the 1,000 largest US companies.

The fund tracks an index of US large- and mid-cap stocks selected from the Russell 1000 Index for value characteristics.

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