Generate Passive Income From This Low-Cost Vanguard ETF That Is Crushing the S&P 500 in 2025

Investors typically turn to dividend-paying stocks and exchange-traded funds (ETFs) to boost their passive income streams so that their returns aren't solely tied to stock price gains. But so far this year, many value and income stocks have performed better than growth stocks. When market sentiment shifts negative, investors sometimes gravitate toward companies whose appeal is more about present-day strength than future growth.

Here's why the Vanguard Mega Cap Value Index Fund ETF (NYSEMKT:MGV) checks all the boxes for value investors, and why the ETF could be worth buying now.

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Image source: Getty Images.

A strong start to the year

While the Vanguard Mega Cap Value ETF is only up 0.5% this year as of Thursday's close, it's handily outperforming the broader S&P 500 (SNPINDEX:$SPX) and Nasdaq Composite (NASDAQINDEX:$NASX).

MGV data by YCharts

The Vanguard Mega Cap Value Index Fund ETF and the Vanguard Mega Cap Growth Index Fund ETF (NYSEMKT:MGK) are essentially two sides of the same coin.

The Mega Cap Value ETF targets industry-leading stocks mostly from value-focused pockets of the market, like financials, consumer staples, industrials, healthcare, and energy, whereas the Mega Cap Growth ETF is concentrated in tech stocks, consumer discretionary, and communications.

Since the largest companies in the S&P 500 are growth stocks, the Mega Cap Growth ETF is much more like the index than the Mega Cap Value ETF. The Mega Cap Growth ETF assigns high weightings to names like Apple, Microsoft, and Nvidia, whereas the Mega Cap Value ETF doesn't even include those companies.

Here's a look at the top 10 holdings in the Vanguard S&P 500 ETF (NYSEMKT:VOO) -- which performs similarly to the index -- compared to the two mega cap funds discussed.

Data source: Vanguard.

The Mega Cap Value ETF is far less top-heavy than the Mega Cap Growth ETF, or even the S&P 500 ETF. Consider that the top 10 holdings in the Mega Cap Value ETF have a combined weight of just 28.3%, compared to 37.6% for the Vanguard S&P 500 ETF and a jaw-dropping 65.4% for the Mega Cap Growth ETF. Also, notice that the top seven holdings in the Mega Cap Growth ETF are identical to the S&P 500 ETF.

These companies, also known as the "Magnificent Seven," led the stock market to new heights in 2023 and 2024, but have underperformed the S&P 500 so far in 2025. In other words, being heavily concentrated in just a handful of stocks is a double-edged sword that can lead to higher than historical gains, but also accelerate a sell-off.

A better value and yield than the S&P 500

By concentrating on value-focused sectors, the Mega Cap Value ETF sports a less expensive valuation and a higher yield than the S&P 500 ETF. The fund yields 2% as of Vanguard's last update on Feb. 28 and had a 20.4 price-to-earnings (P/E) ratio as of Jan. 31, compared to a 1.2% yield and 27.5 P/E ratio for the Vanguard S&P 500 ETF.

Unlike some ETFs focusing mainly on yield, the Mega Cap Value ETF has produced good long-term gains. Over the last decade, top U.S. value stocks have grown in market cap -- just not at the same pace as mega cap growth stocks. So unsurprisingly, the Mega Cap Growth ETF has outperformed the S&P 500 over the past decade, while the Mega Cap Value ETF has underperformed.

Still, the Mega Cap Value ETF could be a better fit for investors who have some aversion to risk or are simply looking to put new capital to work in the stock market while avoiding top growth stocks.

Let the Mega Cap Value ETF work for you

With just a 0.07% expense ratio and a minimum investment of $1, the Mega Cap Value ETF is a simple way to get exposure to a variety of blue chip names from value-focused sectors. However, it's vital that you buy the Mega Cap Value ETF for the right reasons.

Jumping out of growth stocks and into value stocks when fearful, or out of value stocks and into growth stocks when greedy, are terrible ideas. Rather, the better approach is to determine what role (if any) the Mega Cap Value ETF could fill in your portfolio.

If you're a value-focused investor, the ETF can be a passive plug-and-play way to put new capital to work in the stock market. If you are a growth investor who regularly saves but already owns sizable positions in mega cap growth stocks, the Mega Cap Value ETF can be a useful tool for investing in the market without overly concentrating on stocks you already own.

All told, it's best to use the Mega Cap Value ETF to help you achieve your financial goals, rather than buying the fund just because it is beating the S&P 500 a few months into the year.

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