7 Low-Cost Vanguard ETFs to Kick-Start Your Portfolio in 2018

These low-cost Vanguard ETFs can provide a boost to your portfolio in 2018

By Todd Shriber, InvestorPlace Contributor

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2017 was another record year for assets flowing into exchange-traded funds (ETFs), and Vanguard was a big reason why. As of the end of November, Vanguard was second best among all U.S. ETF sponsors in terms of the value of new assets ($127.7 Billion) and the number of top asset-gathering ETFs (three). When it came to lost assets, not one Vanguard ETF was among last year’s worst offenders.

By some estimates, Vanguard could be managing $10 trillion in total assets by 2023. That is a long way off and more than double the Pennsylvania-based company’s current assets. It is not a stretch, however, to say Vanguard will continue adding index fund and ETF assets at an impressive clip this year.

Here are some low-cost Vanguard ETFs to jump-start portfolios early in 2018.

Vanguard Value ETF (VTV)

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Expense ratio: 0.06% per year, or $6 on a $10,000 investment.

Vanguard Value ETF (NYSEARCA:VTV) is one of the largest smart beta ETFs trading in the U.S. With a paltry annual fee of just 0.06%, it is also one of the cheapest. According to issuer data, VTV is cheaper than 94% of rival funds. At the end of November, VTV was home to $35.6 billion in assets under management.

So what’s the outlook for VTV in 2018? In 2017, value stocks lagged their growth and momentum counterparts as well as the broader market. For instance, VTV rose 17.1% in 2017, but that trailed the S&P 500 by 460 basis points.

But this does not mean value stocks should be written off.

Investors should realize that factor leadership changes from year-to-year and that the value factor could rebound this year. Historical data suggest the time to embrace value funds is when value is out of favor. Don’t wait until after value stocks have been embraced by swarms of investors.

With the U.S. bull market aging, few vestiges of value remain, leading to concentrated sector bets in index funds like VTV. This Vanguard fund devotes almost 26% of its weight to financial services stocks, nearly double its second-largest sector allocation.

Vanguard FTSE Developed Markets ETF (VEA)

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Expense ratio: 0.07%, or $7 on a $10,000 stake.

Speaking of the search for value, investors took to international markets looking for value opportunities last year. That theme benefited the Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA) in a big way. This Vanguard fund added $17.4 billion in new assets last year, a total surpassed by just two other ETFs.

VEA allocates 22.2% of its weight to Japan. The Japanese market is widely viewed as inexpensive relative to U.S. stocks. Europe, another region attractively valued when measured against the S&P 500, accounts for almost 54% of this Vanguard ETF’s roster.

VEA, which holds over 3,800 stocks, has a price-to-earnings ratio of 16 and a return on equity of 11.1%. The ETF surged 26.4%, outperforming the S&P 500 for the first time since 2012.

Vanguard Total Corporate Bond ETF (VTC)

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Expense ratio: 0.07%, or $7 on a $10,000 stake.

The Vanguard Total Corporate Bond ETF (NASDAQ:VTC) was the only Vanguard ETF launched  in 2017. VTC debuted in early November and by the end of the month, the ETF had $23.3 million in assets under management.

VTC is an ETF of ETFs. Its holdings are Vanguard’s other corporate bond ETFs: Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH), Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) and Vanguard Long-Term Corporate Bond ETF (NASDAQ:VCLT).

This structure gives investors exposure to over 5,500 investment-grade corporate bonds. Not only that, but VTC is among the cheapest corporate bond ETFs on the market.

Vanguard International High Dividend Yield ETF (VYMI)

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Expense ratio: 0.32%, or $32 on a $10,000 investment.

The Vanguard International High Dividend Yield ETF (NASDAQ:VYMI) is the international cousin to the popular Vanguard High Dividend Yield ETF (NYSEARCA:VYM).

VYMI tracks the FTSE All-World ex US High Dividend Yield Index. It less than two years old, but that has not stopped this Vanguard ETF from hauling in almost $840 million in assets under management.

The 2018 opportunity set with VYMI is two-fold. First, as mentioned earlier, international stocks are attractively valued compared to U.S. equities. Second, international dividend payers typically yield more than equivalent domestic fare, providing investors with added income.

Vanguard Small-Cap Value ETF (VBR)

Expense ratio: 0.07%, or $7 on a $10,000 stake.

The Vanguard Small-Cap Value ETF (NYSEARCA:VBR) gained just 11.6% last year. The lethargic performance is not surprising, considering the aforementioned laggard status of the value factor coupled with large-caps outpacing smaller stocks by an usually large margin. History could be on the side of smaller stocks this year.

“Based on history, it seems the large caps never held onto outperformance this big, so perhaps it will be a better year for the mid and smaller cap equities ahead,” said S&P Dow Jones Indices.

The $12.5 billion VBR is heavily concentrated at the sector level with financials and industrial combining for almost half of this Vanguard ETF’s weight.

Vanguard Energy ETF (VDE)

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Expense ratio: 0.1%, or $10 on a $10,000 position.

The energy sector was the worst-performing group in the S&P 500 last year, but on the back of rising oil prices, the sector ended 2017 on a torrid pace. That could set up the Vanguard Energy ETF (NYSEARCA:VDE) for a solid 2018.

“The Energy sector is expected to report the highest (year-over-year) earnings growth of all 11 sectors at 274.6%,” according to FactSet research. “At the sub-industry level, all six sub-industries in the sector are projected to report earnings growth: Oil & Gas Exploration & Production (N/A due to year-ago loss), Oil & Gas Drilling (N/A due to year-ago loss), Oil & Gas Equipment & Services (165%), Integrated Oil & Gas (118%), Oil & Gas Refining & Marketing (55%), and Oil & Gas Storage & Transportation (19%).”

Be advised, VDE allocates 37.5% of its combined weight to Dow components Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX).

Vanguard Emerging Markets Government Bond ETF (VWOB)

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Expense ratio: 0.32% per year, or $32 on a $10,000 position.

The Vanguard Emerging Markets Government Bond ETF (NASDAQ:VWOB) yields nearly 4.6%, which is almost double what investors get on 10-year Treasuries. Additionally, this Vanguard ETF does not present investors with significant credit risk as over 56% of its portfolio carries investment-grade ratings.

One more reason to consider to VWOB: Mexico was the only emerging market that raised interest rates last year and similarly small number of developing economies (likely none outside of Mexico) are expected to follow suit this year.

As of this writing, Todd Shriber was long VEA.


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/7-vanguard-etf-kick-start-2018/.

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