Is the Vanguard US Total Market Shares Index ETF now trading at bargain levels?

The US stock market has been pummelled in recent weeks. Is it time to buy the whole share market?

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Key points

  • Things are changing rapidly in the US with inflation and rising interest rates
  • The Vanguard US Total Market Shares Index ETF is one way to play the US share market
  • 3Fourteen Research thinks it could be time to start looking at US shares

Investors of US shares have seen a painful drop in the last few weeks. This is reflected in the price of Vanguard US Total Market Shares Index ETF (ASX: VTS), down around 20% since the start of 2022 amid inflation and rising interest rates.

However, the last 12 months show less of a decline – it’s only down by around 8%. Interestingly, the VTS ETF is now back at the price that it was just before the COVID-19 crash.

But after such a hefty decline in 2022, could the Vanguard US Total Market Shares Index ETF price be good value? Some investors have been looking at the US share market and are starting to see opportunities.

The US share market could be nearing the bottom?

According to reporting by the Australian Financial Review, Warren Pies from 3Fourteen Research has suggested it could be time to look at the US share market and think about buying.

The call is based on looking at the forward price to earnings (P/E) ratio and interest rates. In his eyes, the US stock market is underlying by “about 10% at present”. He wrote:

Historically, bear market bottoms occur when this discount moves to between 15 and 20 per cent.

During a big sell-off, we find ourselves — like most investors — a bit paralysed. Pulling the trigger is difficult. It’s always darkest before the dawn, and every 20% sell-off feels like it could go another 20%.

In hindsight, it’s easy to see the signs of a low — cheap valuations, washed out sentiment and policy support define most bottoms. Yet, trading bear markets is easy in theory but difficult in practice.

He also said that energy remains a market hedge and that 3Fourteen Research are buyers of the dip.

What is Vanguard US Total Market Shares Index ETF?

For readers that haven’t heard of the VTS ETF before, it’s an exchange-traded fund (ETF) offered by Vanguard.

The idea is that it gives exposure to most of the US share market. It’s actually invested in more than 4,100 businesses.

However, it does give the biggest exposure to the largest businesses on the US share market. These include Apple, Microsoft, Alphabet, Amazon.com, Tesla, Berkshire Hathaway, UnitedHealth, Johnson & Johnson, Meta Platforms and Nvidia.

It comes with an annual management fee of 0.03% per annum, which is one of the lowest for ETFs in Australia.

In terms of sector diversification, Vanguard US Total Market Shares Index ETF has double-digit sector allocation to five industries: technology (26.4%), consumer discretionary (14.8%), healthcare (13.8%), industrials (12.8%) and financials (11.1%).

While past performance is no guarantee of future performance, the VTS ETF has produced an average return per annum of 12.6% per annum over the last three years.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Microsoft, Nvidia, and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and UnitedHealth Group and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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