Designed to provide broad exposure to the Large Cap Value segment of the US equity market, the Vanguard Mega Cap Value ETF (MGV) is a passively managed exchange traded fund launched on 12/17/2007.
The fund is sponsored by Vanguard. It has amassed assets over $5.96 billion, making it one of the average sized ETFs attempting to match the Large Cap Value segment of the US equity market.
Why Large Cap Value
Large cap companies typically have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.
Value stocks have lower than average price-to-earnings and price-to-book ratios. They also have lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.
Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.
Annual operating expenses for this ETF are 0.07%, making it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 2.42%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Healthcare sector–about 25% of the portfolio. Financials and Industrials round out the top three.
Looking at individual holdings, Unitedhealth Group Inc. (UNH) accounts for about 3.71% of total assets, followed by Johnson & Johnson (JNJ) and Berkshire Hathaway Inc. (BRK.B).
The top 10 holdings account for about 26.18% of total assets under management.
Performance and Risk
MGV seeks to match the performance of the CRSP U.S. Mega Cap Value Index before fees and expenses. The CRSP U.S. Mega Cap Value Index is a float-adjusted, market-capitalization-weighted index designed to measure equity market performance of mega-capitalization value stocks in the United States.
The ETF has added about 1.48% so far this year and is down about -1.50% in the last one year (as of 01/11/2023). In the past 52-week period, it has traded between $89.91 and $109.28.
The ETF has a beta of 0.88 and standard deviation of 23.54% for the trailing three-year period, making it a medium risk choice in the space. With about 148 holdings, it effectively diversifies company-specific risk.
Vanguard Mega Cap Value ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, MGV is an outstanding option for investors seeking exposure to the Style Box – Large Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.
The iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV) track a similar index. While iShares Russell 1000 Value ETF has $55.27 billion in assets, Vanguard Value ETF has $99.76 billion. IWD has an expense ratio of 0.18% and VTV charges 0.04%.
An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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