Is the Vanguard Value ETF the Best Ultra-Low-Cost Fund for Generating Passive Income?

Collecting passive income from stocks is a simple and effective way to participate in the market without having the return based solely on stock prices going up.

Exchange-traded funds (ETFs) that invest in dividend stocks provide the added benefit of diversification, making them solid options for investors looking to spread out risk across dozens or even hundreds of different names.

The Vanguard Value ETF (VTV -0.83%) is a massive ETF with $195 billion in net assets. The fund’s size allows investment management firm Vanguard to charge a mere 0.04% expense ratio, or just 40 cents for every $1,000 invested.

Here’s why the Vanguard Value ETF is a good choice for generating passive income from industry-leading companies.

No “Magnificent Seven” exposure

The key difference between the Vanguard Value ETF and a fund that tracks a major index, like the Vanguard S&P 500 ETF (VOO -0.48%), is that the Vanguard Value ETF does not contain any “Magnificent Seven” companies.

The “Magnificent Seven” are seven major tech-focused companies — Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla. Combined, these companies make up 31.2% of the Vanguard S&P 500 ETF. But all seven stocks are down big in 2025 and are underperforming the S&P 500.

VTV data by YCharts

With the exception of Broadcom, the largest holdings in the Vanguard Value ETF aren’t from tech-focused sectors. Rather, they are financial leaders like Berkshire Hathaway and JPMorgan Chase, energy giants like ExxonMobil, Healthcare behemoths like UnitedHealth Group, Johnson & Johnson, and AbbVie, consumer staples companies like Walmart and Procter & Gamble, and consumer discretionary companies like Home Depot.

Data source: Vanguard.

Combined, the top 10 holdings in the Vanguard Value ETF make up 22.5% of the fund compared to 36.2% for the top 10 holdings in the Vanguard S&P 500 ETF.

A quality yield at a good value

Compared to the S&P 500, the Vanguard Value ETF has less exposure to technology and consumer discretionary but outsized exposure to financials, healthcare, industrials, consumer staples, energy, utilities, and real estate. Many companies in these sectors pay dividends and are valued more for their current earnings than their potential growth.

During times of uncertainty and stock market sell-offs, investors may gravitate toward proven companies and pay less for companies that need to grow into their valuations. The Vanguard Value ETF is chock-full of companies that can still produce strong earnings even during a downturn and support their growing dividend payments.

The Vanguard Value ETF sports a 2.2% yield and a mere 18.8 price-to-earnings (P/E) ratio compared to a 1.2% yield and pricier 23.8 P/E ratio for the Vanguard S&P 500 ETF.

A plug-and-play option for value investors

There are plenty of ETFs and individual stocks that yield considerably more than the Vanguard Value ETF. But the fund is arguably one of the best buys for folks looking to invest in quality dividend-paying companies rather than get the most yield.

It’s important to remember that yield is only as reliable as the company paying it. A stock may have a high yield on paper, but the yield isn’t reliable if the underlying business isn’t growing or has a poor balance sheet. In contrast, top holdings in the Vanguard Value ETF have multidecade streaks of increasing their payouts year after year.

Add it all up, and the Vanguard Value ETF is a great choice for folks looking for diversification and a steady source of passive income regardless of stock prices.