The popular index fund asks a higher price than its recent past, but the powerful growth of its biggest holdings makes a strong case for the premium.
Vanguard S&P 500 ETF (VOO) trades at a trailing price-to-earnings ratio of 28.2, a clear step up from its five-year average of 24.7. Before you even consider the stocks inside, that price presents a stark choice: the fund's aggregate earnings yield of 3.5% is well below the 4.6% you can get from a 10-year US Treasury. The question is whether what's inside this basket is growing fast enough to justify that trade-off.
A Price Tag With High Expectations
By the simple yardstick of its own history, VOO looks expensive. Today's price is about 14% above the average P/E investors have paid over the last five calendar year-ends. You are paying more for each dollar of the S&P 500's collective earnings than at almost any point in recent memory. An index fund has no star manager to justify a higher price; the value must come directly from the 505 positions it holds.
The Growth Engine Under the Hood
#earnings #fund
Vanguard S&P 500 ETF (VOO) trades at a trailing price-to-earnings ratio of 28.2, a clear step up from its five-year average of 24.7. Before you even consider the stocks inside, that price presents a stark choice: the fund's aggregate earnings yield of 3.5% is well below the 4.6% you can get from a 10-year US Treasury. The question is whether what's inside this basket is growing fast enough to justify that trade-off.
A Price Tag With High Expectations
By the simple yardstick of its own history, VOO looks expensive. Today's price is about 14% above the average P/E investors have paid over the last five calendar year-ends. You are paying more for each dollar of the S&P 500's collective earnings than at almost any point in recent memory. An index fund has no star manager to justify a higher price; the value must come directly from the 505 positions it holds.
The Growth Engine Under the Hood
#earnings #fund
7 days ago
