Market participants have been increasingly buying exchange-traded funds (ETFs). One group of funds potential investors research is the family of Vanguard ETFs. For decades, its founder, John Bogle, has been regarded as an investing legend.
In an article in the Financial Analysts Journal titled, “In Memoriam: John C. Bogle,” Stephen Brown says: “He was a thought leader who—through his many books, articles, and lectures—argued the case for investing rather than speculating and the manifest common sense of becoming rich slowly.” We will look at seven Vanguard ETFs to buy that could be appropriate for a range of investment portfolios.
Regular InvestorPlace.com readers are familiar with different ETFs, which are a basket of securities of various asset classes (such as stocks, bonds, commodities). An ETF typically follows an index, which itself tracks returns on a buy-and-hold basis and is therefore a passive investment approach. Broad-market index ETFs enable investors to diversify their portfolio holdings by tracking indices such as the S&P 500.
In an article Mr. Bogle authored in 2017, he reminds us the brief history of index funds and says, “On 18 September 1975, at the board meeting of the one-year-old Vanguard Group, the directors approved my proposal that our firm form the world’s first index mutual fund.”
What a difference 40 years make! Yes, index funds continue to be the investment of choice for Main Street investors—whom they were primarily designed to serve—soon joined by a wide array of pension funds and thrift plans. But index funds have now become the darlings of Wall Street. To a remarkable degree, they have taken a different form: exchange-traded (index) funds (ETFs) that can be—and frequently are—“traded all day long, in real time” (an excerpt from an early ETF advertisement), held largely by financial institutions and mostly used for speculation, hedging, arbitrage, or other short-term purposes.
For example, launched in January 1993, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) was the first exchange-traded fund listed in the U.S. Over the past three decades, ETFs such as those offered by Vanguard have become popular passive investment vehicles. Most investors favor Vanguard’s low transaction costs and high intraday liquidity. As a result, Vanguard funds typically have large assets under management and are volume-driven.
With that information, here are seven Vanguard ETFs to buy:
- Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA)
- Vanguard Information Technology ETF (NYSEARCA:VGT)
- Vanguard International Dividend Appreciation ETF (NASDAQ:VIGI)
- Vanguard Real Estate ETF (NYSEARCA:VNQ)
- Vanguard Russell 1000 Growth Index Fund ETF Shares (NASDAQ:VONG)
- Vanguard Total Bond Market ETF (NASDAQ:BND)
- Vanguard Total Stock Market ETF (NYSEARCA:VTI)
Vanguard ETFs: Vanguard FTSE Developed Markets ETF (VEA)
52-week range: $28.46 – $44.67
Expense Ratio: 0.05%
Dividend Yield: 2.51%
Our first Vanguard fund is an international one, giving exposure to companies in developed markets. VEA, which has over $120 billion in assets and holds over 4,000 stocks, tracks the performance of the FTSE Developed All Cap ex US Index. In terms of regional allocation, Europe tops the list with 52.7%, followed by Pacific (37.7%) and North America (8.7%).
So far in the year, VEA is down about 5.4%. However, it has moved up about 50% since the lows seen in March. Its trailing P/E and P/B ratios are 1.5. Those investors who would like to have exposure to developed markets outside our own borders may want to consider buying the dips, especially if the price declines toward $37.50.
Vanguard Information Technology ETF (VGT)
52-week range: $179.45 – $340.74
Expense Ratio: 0.10%
Dividend Yield: 0.86%
Next on this list of Vanguard ETFs, the Vanguard Information Technology ETF, provides exposure to a range of companies within the electronics and computer industries. Over the past decade, the industry has been one of the catalysts of the U.S. and global economy. We can possibly expect the trend to continue in the coming quarters, too.
The benchmark index, the Information Technology Spliced Idx. VGT, holds 328 stocks. The fund has close to $45 billion in net assets. Its top ten holdings comprise about 60% of the funds. Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Visa (NYSE:V) are the top three holdings.
In terms of sectoral allocation, Technology Hardware, Storage & Peripherals (24.30%), Systems Software (20.6%), Data Processing & Outsourced Services (14.2%), and Application Software (13.2%) have the leading spots.
Year-to-date (YTD), VGT is up about 28%. If you are an investor who also follows technical indicators and short-term charts, you may be interested to know that the price is currently overbought, signaling caution. Given the increased volatility levels in broader markets, you may want to wait for a pullback, ideally toward the $300-level.
Vanguard International Dividend Appreciation ETF (VIGI)
52-week range: $50.55 – $74.34
Expense ratio: 0.20%
Dividend Yield: 1.6%
Our next discussion centers around global companies that typically grow their dividend payouts. The Vanguard International Dividend Appreciation ETF provides exposure to businesses in both developed and emerging markets, excluding the U.S., that are likely to increase their dividends over time.
VIGI, which has 426 holdings, tracks the NASDAQ International Dividend Achievers Select Index. The top ten companies comprise about 33% of net assets which stand at 2.7 billion. Tencent Holdings (OTCMKTS:TCEHY), Nestle, and Roche have the top spots in the fund. In terms of industrial weightings, Consumer Goods heads the list with 19.4%, followed by Technology (17.7%), Healthcare (15.1%), Financials (15.1%), and Industrials (14.9%).
YTD, the fund is up about 2%. However, its run-up since the March-lows has been quite significant, around 50%. If you like dividends and would like some diversification outside the U.S., then you may consider committing capital into VIGI, especially if the price declines toward $67.50.
Vanguard Real Estate ETF (VNQ)
52-week range: $50.55 – $74.34
Expense ratio: 0.20%
Dividend Yield: 4.29%
Next in our discussion of Vanguard ETFs are real estate investment trusts (REITs) and the Vanguard Real Estate ETF. Over the past several months, housing data, such as Housing Starts, Building Permits, and Existing Home Sales, has been encouraging for investors.
Understandably, during the pandemic days, sub-sectors, such as retail, hospitality and even office space, have been adversely affected. However, sales figures across the nation as well as anecdotal evidence shows the health and resiliency of the housing sector. Newly-built homes and houses in suburbs away from city centers are seeing a spike in demand. On another positive note, low inflation means overall funding costs are also low.
VNG, which has 181 holdings, tracks the MSCI US Investable Market Real Estate 25/50 Index. The ten largest holdings comprise close to half of net assets which are over $57 billion. The REITs are diversified across sub-sectors.
Since the start of the year, VNQ is down about 11%. If you believe REITs may continue to benefit from a potential recovery in the coming months, then you may want to do further due diligence on the fund with a view to invest around $75.
Vanguard Russell 1000 Growth Index Fund ETF Shares (VONG)
52-week range: $131.88 – $240.69
Expense ratio %: 0.08%
Dividend yield: 0.70%
The Vanguard Russell 1000 Growth Index Fund ETF provides exposure to a wide range of growth stocks among large-capitalization (cap) U.S. companies. VONG, which has 437 holdings, tracks the Russell 1000 Growth Index.
The top ten stocks make up close to half of net assets which are about $8.5 billion. Apple, Microsoft, and Amazon (NASDAQ:AMZN) head the list of businesses. In terms of industry weightings, the fund allocates funds to Technology (46.30%), Consumer Discretionary (20.40%), Healthcare (13.20%), Financial Services (9.80%), and Producer Durables (5.40%). In recent years, growth names have definitely been charging the bull market and investors have not been shy to buy the top names.
YTD, this Vanguard ETF is up about 24%. Its trailing P/E and P/B ratios stand at 40.2 and 11.9. These are rich metrics, even for large-cap growth businesses. If you’re interested in adding these stocks to your holdings, you may want to add the fund to your shopping list. Potential investors may buy into upcoming declines especially around $200.
Vanguard Total Bond Market ETF (BND)
52-week range: $76.49 – $89.59
Expense ratio: 0.035%
Dividend yield: 2.49%
We all know what a choppy year 2020 has been. The last quarter of the year has also started on a volatile note. Broader markets will possibly have many up and down days in October. As heavyweights start reporting in a few days, prices will swing widely. Therefore, diversifying away from equities into fixed income could be an appropriate strategy for the last quarter of the year.
BND provides exposure to investment-grade U.S. dollar-denominated bonds. It is heavily weighted toward U.S. Government bonds (over 60%). As a result, it has low credit risk. This is not surprising since a large number of investors consider U.S. Treasuries as one of the safest asset classes. The other one is likely to be gold.
This Vanguard ETF, which tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted index, is highly liquid thanks to net assets which are shy of $300 billion. Other than U.S. Government, issuers of the bonds in the fund include industrial (18.3%) and financial (9%) companies, foreign government bonds (5) and utilities (2.4%).
Year-to-date, the fund is up about 4.66%. We believe this fund could have a place in a diversified long-term portfolio. Playing a little defense could appeal to many retail investors. A bond ETF may offer downside protection and income stream. It would also help reduce the overall volatility of a portfolio.
Vanguard Total Stock Market ETF (VTI)
52-week range: $109.49 – $181.67
Expense ratio: 0.03%
Dividend yield: 1.99%
Last but not least on this list of Vanguard ETFs to consider is the Vanguard Total Stock Market ETF, which could be a cornerstone ETF for a large number of long-term portfolios. VTI, which has 3,525 holdings, tracks the CRSP US Total Market Index. Therefore, it covers all sectors across mega-, large-, mid- and small-cap stocks in domestic equity markets.
In terms of sectoral allocation, the list is headed by technology stocks (27.80). Then come Financials (15.5%), Consumer Services (14.7%), Health Care (13.4%), and Industrials (11.7%). The fund’s top 3 holdings are Apple, Microsoft, and Amazon. The top ten stocks make up close to a quarter of net assets, which are close to a $1 trillion.
YTD, the fund is up over 6%. I regard this fund as a play on the growth of our economy in the long-term. Although there may be choppiness and hiccups along the way, the trajectory will remain up. Long-term buy-and-hold investors may consider buying the dips. A fall toward the $170-level would make the fund especially attractive.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.