The S&P 500 gained 2.5% in the first half of the year, delivering a decent though not jaw-dropping performance. With the second half of the year, now could be an ideal time for some investors to consider reconfiguring their portfolios or buy some of the first half’s outperforming (or laggard) funds.
Some Vanguard funds delivered the goods in the first half while others offered middling or sub-par performances. That is the case with any fund issuer, but at least Vanguard funds remain among the most cost-effective in the industry.
Year-to-date among exchange-traded funds (ETFs), three Vanguard funds are among the top 10 asset gatherers while one Vanguard fund is among the 10 worst ETFs in terms of assets lost.
The following group of Vanguard funds consists of some first-half winners that can continue soaring as well as some products that offer rebound potential in the last six months of 2018.
Best Vanguard Funds
Vanguard FTSE Emerging Markets ETF (VWO)
Expense Ratio: 0.14% annually, or $14 per $10,000 invested.
Including a few days worth of trading in the quarter, the Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO), is off almost 6.5% year-to-date, indicating this Vanguard fund fits the bill as a possible second-half rebound candidate.
One of the primary issues hindering emerging markets stocks this year are fears of trade wars. The White House wants to levy punitive tariffs against some major trading partners, including China. Predictably, China is promising retaliatory tariffs. Those geopolitical tensions are weighing on Chinese stocks, which is problematic for VWO because the world’s second-largest economy is this Vanguard fund’s largest geographic exposure at 36.1%.
There are other headwinds for VWO to contend with, including the aftermath of Mexico’s recent presidential election as well as national elections in Brazil, slated for October.
VWO, which holds almost 4,700 stocks, could get a lift from the White House backing off of the tariff effort, retrenchment by the dollar and large investors bargain hunting with Chinese stocks, among other possible catalysts.
Best Vanguard Funds
Vanguard Small-Cap Growth ETF (VBK)
Expense Ratio: 0.07%
The Vanguard Small-Cap Growth ETF (NYSEARCA:VBK) is one of the many small-cap funds that are soaring this year. This Vanguard fund is up nearly 13% year-to-date and hit another record high on July 10.
One quibble some investors may have this Vanguard fund is its level of small-cap purity as VBK’s 675 holdings have a median market value of $5 billion, which is well into mid-cap territory.
The combination of small-cap and growth usually means significant allocations to the consumer discretionary, healthcare and technology sectors and that is true with VBK as those three sectors combine for nearly half of this Vanguard fund’s weight.
Best Vanguard Funds
Vanguard U.S. Minimum Volatility ETF (VFMV)
Expense Ratio: 0.13%
The Vanguard U.S. Minimum Volatility ETF (CBOE:VFMV) is one of the newest Vanguard funds, having debuted in February as part of a broader suite representing Vanguard’s initial foray into the world of actively managed factor-based ETFs.
Some traditional low volatility strategies struggled in the first of 2018 as interest rates jump, but active management could help this Vanguard fund deliver reduced volatility in a better mousetrap. For instance, VFMV is not heavily allocated to sectors with bond-like traits. VFMV currently features no real estate or telecommunications exposure among its 164 holdings and the consumer staples and telecommunications sectors combine for less than 16% of the ETF’s weight.
VFMV also offers a different approach to the low volatility factor in that it features large-, mid- and small-cap stocks, while legacy products in this category typically focus on just one market cap segment. Additionally, VFMV’s annual fee of 0.13% is paltry among smart beta and active ETFs.
Best Vanguard Funds
Vanguard Real Estate ETF (VNQ)
Expense Ratio: 0.12%
Speaking of real estate, the Vanguard Real Estate ETF (NYSEARCA:VNQ) struggled through the first several months of 2018, but this Vanguard fund has recently been on a tear. Since May 1, VNQ, the largest sector ETF of any variety, is up 8.3%, 300 basis points better than the S&P 500 over the same period.
Like utilities, real estate investment trusts (REITs) and funds like VNQ are vulnerable to higher Treasury yields. With that in mind, VNQ’s recent price action may be a sign that some market participants are expecting Treasury yields to decline over the near-term.
“VNQ, took in $427 million during the week ended July 6, its biggest weekly inflow since January 2017, as the yield on 10-year Treasuries dropped four basis points to 2.82 percent,” according to Bloomberg.
Best Vanguard Funds
Vanguard Mega Cap Growth ETF (MGK)
Expense Ratio: 0.07%
Growth stocks continue outpacing their value rivals, a trend that the Vanguard Mega Cap Growth ETF (NYSEARCA:MGK) is at the epicenter of. Year-to-date, this Vanguard fund is topping the S&P 500 by a margin of better than 2-to-1.
Critics assert that a potential for U.S. stocks is the high percentage of the S&P 500’s returns attributable to a small number of stocks, namely the FAANG quintet. That is just fine by MGK because this Vanguard fund features all five FAANG stocks among its top 10 holdings.
In order, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX) combine for 29.40% of MGK’s roster.
Best Vanguard Funds
Vanguard Communications Services ETF (VOX)
Expense Ratio: 0.10%
Once an old school telecommunications fund dominated by the likes of Verizon (NYSE:VZ) and AT&T (NYSE:T), the Vanguard Communications Services ETF (NYSEARCA: VOX) is getting a new look.
Last year, index providers MSCI and Standard & Poor’s announced changes to the telecommunications sector, which result in the formation of the communications services group. Notably, those changes include some big-name Internet and technology stocks that previously lived in consumer discretionary and tech ETFs moving to telecom funds.
So VOX was once arguably boring, but this Vanguard fund is getting a facelift with the additions of Alphabet, Facebook and others.
Best Vanguard Funds
Vanguard International Dividend Appreciation ETF (VIGI)
Expense Ratio: 0.25%
The Vanguard International Dividend Appreciation ETF (NASDAQ:VIGI) is not setting the world ablaze, but among international ETFs, this Vanguard fund has been relatively steady this year with a modest loss of just under 1%.
That could be a sign of some better times ahead in the second half. For this Vanguard fund to rebound in earnest in the second half, contributions from multiple regions are needed. VIGI allocates over a quarter of its weight to developing economies. Europe is essential to the equation as well because this Vanguard ETF devotes almost 49% of its roster to European equities.
VIGI’s dividend yield of 1.76% is almost 90 basis points below the yield on the MSCI ACWI ex USA Index, but the Vanguard is outperforming that widely followed benchmark this year.
Todd Shriber owns shares of VNQ and VWO.
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