While exchange traded funds or ETFs have been around since the late 1980s, they have grown at a torrid rate during the past decade. The assets now exceed $1 trillion. There are several key reasons to explain this popularity of ETF funds with investors. First of all, investors can trade exchange traded funds throughout the day and even short them. ETF investments are are also generally tax efficient.
But ETF research shows that perhaps one of the biggest draws is that the overall costs of exchange traded funds are fairly low. The main reason is that an ETF fund is often based on an underlying index. All in all, the vehicle is an excellent way to get exposure to a wide-array of markets.
Given these reasons, it should be no surprise that Vanguard is a top player in the ETF market. Vanguard launched its first funds in 2005, and has long been the king of index funds.
In fact, Vanguard now has over 70 ETFs to choose from. But, let’s take a look at the top ones:
Vanguard Dividend Appreciation ETF (VIG)
Vanguard Dividend Appreciation ETF (NYSE: VIG) is based on a custom index, which has tough requirements. For example, a company must increase its dividends for ten consecutive years! The top holdings include Chevron (NYSE: CVX), Coca-Cola (NYSE: KO), Exxon Mobil (NYSE: XOM), International Business Machines (NYSE: IBM) and McDonald’s (NYSE: MCD).
This does not mean that the Vanguard fund will have a high overall dividend yield. Keep in mind that best-of-breed companies tend to sell at preimums.
Yet the total returns have been competitive. For 2009 and 2010, the returns were 19.6% and 14.8%, respectively. And during the 2008 financial crisis, the ETF was off only 26.7%.
Vanguard Growth ETF (VUG)
If you’re looking to spice-up your portfolio with an ETF, the Vanguard Growth ETF (NYSE: VUG) is a good choice. The fund is based on the MSCI U.S. Prime Market Growth Index, which has 750 US stocks that have strong growth prospects.
Although, they are mostly large-cap, which helps to dampen the volatility. Look at some of the top holdings: Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOG) and Oracle (NASDAQ: ORCL).
The Vanguard fund is also dirt cheap. The expense ratio is a mere 0.14%.