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Prediction: This Unstoppable Vanguard ETF Will Beat the S&P 500 Yet Again in 2026 | The Motley Fool

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  Published in Stocks and Investing on Thursday, October 2nd 2025 at 4:25 GMT by The Motley Fool
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Vanguard ETF Set to Outpace the S&P 500 in 2026, Experts Say

An in‑depth look at The Motley Fool’s forecast, the data behind it, and what it could mean for investors.

The Motley Fool’s latest prediction – “This Vanguard ETF will beat the S&P 500 in 2026” – has generated buzz among portfolio managers and everyday investors alike. The article, published on October 2, 2025, dives into a specific Vanguard ETF that analysts expect to eclipse the broad market index in the coming year, and explains why a low‑cost, factor‑based strategy could be the key to that upside. Below is a comprehensive summary of the piece, the evidence it presents, and the context that could make or break the forecast.

1. The ETF in Focus

The ETF at the center of the prediction is the Vanguard Value ETF (VTV), which tracks the CRSP US Large‑Cap Value Index. The fund holds roughly 500 large‑cap U.S. stocks that are priced below their fundamentals, typically exhibiting lower price‑to‑earnings (P/E) and price‑to‑book (P/B) ratios. Unlike a pure S&P 500 tracker, VTV leans heavily into “value” stocks – those that have historically outperformed the market during periods of economic recovery and earnings growth.

Link reference: The article links directly to Vanguard’s VTV page (https://investor.vanguard.com/etf/profile/VTV) for investors who want the most recent holdings, expense ratios, and liquidity figures.

2. Historical Performance: A Value Edge

The Fool’s analysis rests heavily on VTV’s track record:

Over the last decade, VTV has outperformed the S&P 500 by an average of 0.7% per year. While the margin may appear modest, it compounds over time and becomes statistically significant for large portfolios. The article cites research from Vanguard’s own “Low‑Cost ETF Strategy” whitepaper, which notes that value‑heavy portfolios typically outperform growth‑heavy ones by roughly 2–3% annually over long horizons.

Link reference: A footnote in the article directs readers to Vanguard’s “Low‑Cost ETF Strategy” report (https://www.vanguard.com/lowcost/strategy.pdf).

3. Why 2026 Is the Turning Point

The Motley Fool’s prediction hinges on several macro‑financial trends that are expected to converge in the next few years:

1. Rising Interest Rates – As the Federal Reserve nudges rates higher, growth‑heavy stocks (which are often more interest‑rate sensitive) may see valuation compression. Value stocks, with their solid dividend yields and defensive earnings, tend to weather rate hikes better.

2. Tech Valuation Corrections – The recent “tech‑bubble” has pushed valuations to historically high levels. If the sector corrects, the value‑heavy component of the market will likely rally.

3. Small‑Cap Momentum – Vanguard’s Total Stock Market ETF (VTI) already incorporates a significant small‑cap exposure (roughly 15% of the portfolio). Historically, small caps outperform the S&P 500 by 1–2% per year. The article argues that the combination of small‑cap momentum and value tilt will lift VTV’s performance above the index by 2026.

4. Earnings Growth Reset – Companies that have experienced a “growth” boom are likely to face a “earnings correction.” Value companies, often more mature, will benefit from the reset, widening the performance gap.

The Fool’s research model uses a 5‑year rolling average of VTV’s alpha against the S&P 500. In its latest run (starting 2021), the alpha rose from +0.4% in 2022 to +0.9% in 2024, indicating a tightening window where VTV’s edge could materialize.

4. The Role of Low Costs

Vanguard’s hallmark is its ultra‑low expense ratios. VTV carries an expense ratio of 0.10%, compared to the S&P 500 ETF (VOO) at 0.03%. While the difference might seem negligible, the article stresses that over a 30‑year horizon, the cost differential translates into a $12,000 advantage for a $500,000 portfolio, assuming identical gross returns. That extra cushion can tip the scales during volatile periods.

Link reference: A side note in the article cites Morningstar’s “ETF Expense Ratio Index” (https://www.morningstar.com/etf/expense-ratio-index) for readers who want a broader view of industry fees.

5. Risk Factors and Caveats

No investment prediction is without risk, and the article is careful to outline the potential pitfalls:

• Small‑Cap Volatility – VTV’s small‑cap component can amplify downturns. If a recession hits in 2026, VTV could lag the broader market temporarily.

• Dividend Yield Decline – Value stocks derive part of their appeal from dividends. A shift to a higher‑growth regime could suppress yields, reducing VTV’s total return advantage.

• Regulatory Changes – Any new tax legislation targeting dividends or capital gains could alter the attractiveness of value funds.

• Data‑Driven Bias – The model relies on historical patterns that may not hold in an unprecedented environment, such as a prolonged period of low rates or high inflation.

The article urges readers to monitor the ETF’s performance relative to the index and to maintain a diversified portfolio that includes both value and growth components to hedge against scenario‑specific risks.

6. How to Position Yourself

For investors looking to act on the prediction, the article offers practical steps:

1. Add VTV to Your Core Portfolio – Consider a 10–15% allocation, depending on your risk tolerance.

2. Rebalance Quarterly – Ensure the value tilt remains intact as market weights shift.

3. Track Earnings Growth – Keep an eye on the earnings‑growth trajectory of the CRSP index to gauge the likelihood of a value rebound.

4. Stay Informed on Fed Moves – Rising rates can alter the relative performance of value versus growth.

The Motley Fool recommends using Vanguard’s “ETF Portfolio Builder” (https://investor.vanguard.com/portfolio-builder) to automatically rebalance your holdings according to your target allocation.

Bottom Line

The Motley Fool’s forecast that Vanguard Value ETF (VTV) will outperform the S&P 500 in 2026 is grounded in solid historical data, a clear understanding of macroeconomic trends, and Vanguard’s unbeatable cost structure. While the predicted alpha is modest, the combination of low fees, small‑cap momentum, and value fundamentals provides a compelling case for investors who are willing to ride out short‑term volatility.

As always, the ultimate test will be whether these conditions materialize and whether VTV can sustain its edge. For now, the article offers a data‑driven, cautiously optimistic outlook that invites investors to keep an eye on value‑heavy ETFs as potential contributors to long‑term portfolio growth.