Last year was another banner year for Vanguard, the second-largest U.S. issuer of exchange-traded funds (ETFs). As of Dec. 27, Vanguard ETFs listed in the U.S. had $841.70 billion in assets under management, trailing only BlackRock’s iShares brand.
When 2018 ended four Vanguard ETFs ranked among the year’s top 10 ETFs in terms of new assets added. Only iShares had more funds on that list with five. One of the reasons Vanguard ETFs are so popular with advisors and investors is the issuer’s reputation for having some of the lowest fees in the fund industry.
While there are some examples of ETFs with lower expense ratios than competing Vanguard ETFs, Vanguard has a well-deserved reputation for being one of the low-cost leaders in the index fund and ETF industry.
Here are some of the best Vanguard ETFs to consider in 2019:
Vanguard FTSE Europe ETF (VGK)
Expense ratio: 0.10% per year, or $10 on a $10, 000 investment.
European stocks suffered through a dismal 2018, as highlighted by the Vanguard FTSE Europe ETF (NYSEARCA:VGK) losing almost 18% for the year. VGK finished 2018 residing nearly 13% below its 200-day moving average, a technical indicator the fund has not closed above since the second quarter.
VGK follows the FTSE Developed Europe All Cap Index and its geographic selection universe includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom, according to Vanguard.
Much of the Europe rebound thesis revolves around low valuations. VGK’s price-to-earnings ratio is just over 13, a discount to the S&P 500. In order for this Vanguard ETF to shine in 2019, European geopolitical volatility needs to ease and catalysts beyond valuation and “it cannot get much worse for European stocks” need to emerge.
Vanguard Value ETF (VTV)
Expense ratio: 0.05% per year
Last year was another challenging one for value stocks, but the fourth-quarter slide in growth and momentum has some market observers speculating that investors will favor more defensive value fare in 2019. The Vanguard Value ETF (NYSEARCA:VTV), one of the cheapest value funds on the market, lost nearly 8% last year and trailed the S&P 500.
Like many value funds, this Vanguard ETF was hamstrung in 2018 by a large combined weight to the financial services and energy sectors. Those sectors, two of the worst-performing groups in the S&P 500 last year, combine for nearly 31% of VTV’s weight.
As is the case with European stocks, much of the case for value stocks in 2019 revolves around investors saying enough is enough with the declines and earnestly rotating away from growth into value. Investors added $2.54 billion to VTV in the fourth quarter, indicating some are willing to bet on a value rebound in 2019.
Vanguard High Dividend ETF (VYM)
Expense ratio: 0.08% per year
The combination of rising interest rates and weakness in the broader market hampered high dividend strategies, such as the Vanguard High Dividend ETF (NYSEARCA:VYM), in 2018. This Vanguard ETF finished 2018 with a loss of nearly 9%. If investors flock to defensive sectors in 2019, something that started happening late last year, VYM could be one of the best Vanguard ETFs in the new year.
“A Reuters analysis of 2019 outlooks from 10 major financial institutions found eight, including Morgan Stanley, Goldman Sachs and Barclays, with ‘overweight’ ratings on at least one defensive sector for 2019,” reports Reuters. “That marks a big change from last year, when just two of those banks favored any defensive sectors.”
VYM, which yields 2.78%, allocates about 35% of its combined weight to the defensive consumer staples, healthcare and utilities sectors.
Vanguard FTSE Emerging Markets ETF (VWO)
Expense ratio: 0.14% per year
Something investors heard plenty of in 2018: Emerging markets stocks got punished. From China to Chile and many, many more, emerging markets stocks were a dismal asset class last year as reflected by an annual decline of 17% for the Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO).
VWO, one of the largest emerging markets ETFs by assets, shares some similarities with the aforementioned VGK heading into 2019. Like European stocks, emerging markets equities look like value plays and there is a chorus of investors willing to say things will not get much worse for developing economies.
If the Federal Reserve slows its pace of rate hikes in 2019 and the dollar weakens, there could be upside to be had with emerging markets equities.
“There are at least some reasons to be hopeful for emerging Asian assets: oil prices have dropped about 40% from their October peak, which is a boon for countries that import the commodity. Central banks remain vigilant, while a growing number of analysts, including those at Goldman Sachs Group Inc. and UBS Group AG, say the dollar is close to its peak,” according to Bloomberg.
Vanguard Short-Term Corporate Bond ETF (VCSH)
Expense ratio: 0.07% per year
One way for investors to Fed-proof fixed income portfolios is to lower duration risk. The Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) is one of the best Vanguard ETFs on the short-duration side of the ledger. Plus, this Vanguard fund does not skimp on yield.
VCSH has a yield of 2.58%, which is solid when considering the fund’s average duration is just 2.7 years. This Vanguard ETF holds over 2,200 investment-grade corporate bonds with an average maturity of 2.9 years.
Over 53% of VCSH’s holdings are rated AA or A while 45% are rated BBB. This Vanguard ETF outperformed the longer duration Markit iBoxx USD Liquid Investment Grade Index by about 600 basis points last year.
Vanguard Mid-Cap Value ETF (VOE)
Expense ratio: 0.07% per year
As is the case with the aforementioned VTV, investors embracing the value factor in 2019 would benefit the Vanguard Mid-Cap Value ETF (NYSEARCA:VOE). Mid-cap stocks are coming off a rough 2018 and value stocks were among the more egregious offenders in that category. This Vanguard ETF lagged the S&P MidCap 400 Index by about 240 basis points last year.
VOE holds 204 stocks with a median market value of $13.1 billion, which is just outside of mid-cap territory. Like large-cap value strategies, this Vanguard ETF has a large financial services weight (24.50%). Consumer sentiment is important to the fortunes of this Vanguard ETF as the two consumer sectors combine for 27.20% of VOE’s roster.
VOE’s rock-bottom annual fee makes it cheaper than 94% of competing funds, according to Vanguard data.
Vanguard Tax-Exempt Bond ETF (VTEB)
Expense ratio: 0.09% per year
After establishing a rich tradition in the municipal bond index fund and mutual fund arenas, Vanguard got into muni ETFs with the Vanguard Tax-Exempt Bond ETF (NASDAQ:VTEB). This Vanguard ETF follows the S&P National AMT-Free Municipal Bond Index, one of the most widely followed gauges of municipal bonds.
In terms of sheer number of holdings, the $3.7 billion VTEB is one of the largest municipal bond ETFs as it is home to nearly 4,200 bonds. This Vanguard ETF’s holdings have an average maturity of 13.4 years an average duration of 5.9 years.
As is to be expected with investment-grade municipal bond funds, credit risk is not an issue with this Vanguard ETF as over 90% of its holdings are rated AAA, AA or A.
As of this writing, Todd Shriber owns shares of VWO.