There's little question that tech and growth stocks have driven the S&P 500 (^GSPC +1.18%) higher for the past several years, but 2026 provided a reminder that this won't always be the case.
As economic conditions evolved, the market rotated away from previous winners and into value, defensive, dividend, and small-cap stocks. The outperformance of these groups has moderated somewhat in the past few weeks, but overall investor sentiment has clearly shifted.
With the U.S. economy showing signs of slowing and valuations becoming a concern, I feel that there's plenty of room for these categories to continue outperforming the broader market. That's why one fund I plan to add to my portfolio this year is the Vanguard Value ETF (VTV +0.11%).
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As of March 26, the Vanguard Value ETF was beating the S&P 500 by roughly 7 percentage points for the year. That's been accomplished despite parts of the fund's sector allocation being out of favor. Its top three sectors are financials (21%), industrials (17%), and healthcare (14%). Financials and healthcare have been among the worst-performing sectors.
NYSEMKT: VTV
Key Data Points
Financials have lagged due to a challenging interest rate environment and weaker loan demand. But they also tend to do better when the rate curve begins to steepen. That's happening right now as the 10Y/3M Treasury yield spread is at its highest level since 2022. If inflation risk continues pushing long-term yields higher, it could improve profit margins.
Healthcare stocks have struggled due to a combination of inflation and rising policy risks. But this sector tends to outperform during broader risk-off environments. The durable demand for its products and services despite the economic environment is usually attractive to those seeking more safety from equities.
In short, I think the environment for value stocks will continue improving throughout 2026. And that makes the Vanguard Value ETF a great fund to consider adding.
