If you’re looking for the best index funds to buy ahead of economic reopening, now is a good time take a look at some potential opportunities.
Although it may not seem like it at the moment, the reopening of the economy is inevitable and possibly coming later this year. You don’t need to read a retail analyst’s forecast to know that U.S. consumers are ready to get out spend dollars on products and services that have been unavailable or inaccessible during the pandemic.
Economists, investing gurus and financial media talking heads refer to this building desire to get out and spend as “pent up demand.” If you’re itching to get out and go on vacation, stay in hotels, go to sporting events or attend rock concerts, then you get it.
With that backdrop, in no particular order, here are 7 of the best Vanguard index funds to buy for pent up demand:
- Vanguard Growth ETF (NYSEARCA:VUG)
- Vanguard Russell 2000 ETF (NASDAQ:VTWO)
- Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO)
- Vanguard Consumer Discretionary ETF (NYSEARCA:VCR)
- Vanguard Energy ETF (NYSEARCA:VDE)
- Vanguard Industrials ETF (NYSEARCA:VIS)
- Vanguard Real Estate Index Fund ETF (NYSEARCA:VNQ)
Since the stock market is a forward-looking mechanism, the best time to add funds that can benefit from an economic reopening to your portfolio is now.
Vanguard Index Funds to Buy for Pent Up Demand: Vanguard Growth Index Fund ETF (VUG)
Expenses: 0.04%, or $4.00 for every $10,000 invested
For investors who want to remain aggressive for the long term but also take advantage of large-cap growth momentum in the short term, Vanguard Growth Index Fund ETF (NYSEARCA:VUG) is a fine choice.
If you buy shares of VUG, be ready for heavy exposure to tech stocks, which represent 46% of fund assets. The second largest allocation, at 23% of the portfolio, is to consumer discretionary stocks, which can make a good reopening play.
Vanguard Russell 2000 ETF (VTWO)
Small-cap stocks tend to be market leaders during economic recoveries and one of the best Vanguard index funds to take advantage of this historical trend is Vanguard Russell 2000 ETF (NASDAQ:VTWO).
In the early phase of the economic cycle, small-caps tend to respond faster to the pickup in activity, such as consumer spending. This is partly due to more money flowing in the economy but another factor is a bounce up from recessionary lows.
As the fund name suggest, VTWO tracks the Russell 2000 index, which represents a little more than 2,000 U.S. small-cap stocks. Top sectors are health care at 20.5%, consumer discretionary at 15.3% and industrials at 15.2%, all of which have potential to respond well to pent up demand.
Vanguard FTSE Emerging Markets ETF (VWO)
Since emerging and developing markets economies outside the U.S. are expected to grow at a faster pace than that of the U.S. in 2021, now can be a good time to consider buying shares of Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO).
The World Bank estimates that, in 2021, the U.S. economy will grow at rate of 3.5%, while emerging and developing economies, including China, are expected to grow at 5%. As Covid-19 becomes more contained and economies open wider, these estimates can become a reality.
To get in on that growth potential, VWO tracks the FTSE Emerging Markets All Cap China A Inclusion Index, which covers over 5,000 emerging and developed markets stocks outside the U.S.
Vanguard Consumer Discretionary Index (VCR)
If you’re looking for a one of the best Vanguard index funds that focus on a sector that can benefit from pent up consumer demand, you’ll want to take a good look at Vanguard Consumer Discretionary Index (NYSEARCA:VCR).
Barring any surprise, a majority of U.S. citizens will have been vaccinated against Covid-19 by late summer or early fall. Based upon this reasonable assumption recently addressed here, pent up demand for goods and services in the consumer discretionary sector has potential to grow faster than the broader market. With the combination of a stronger economy and a happy consumer ready to buy, VCR stands to be one of the best Vanguard index to hold.
Vanguard Energy ETF (VDE)
When the economy gets rolling faster, energy stocks can benefit, which means that Vanguard Energy ETF (NYSEARCA:VDE) is one of the best Vanguard index funds to have on your radar now.
2020 was one of the worst years in history for energy stocks but 2021 is shaping up to be one of the best. Due to higher supply and lower demand for oil, the bottom fell out on prices, sending VDE down 33% in 2020. Year-to-date 2021, VDE is up 19.9%. This momentum could very well continue, especially if world economies continue growing as expected through the year.
VDE tracks the MSCI US Investable Market Energy 25/50, which consists of about 100 energy stocks, most of which are large-cap U.S. equities like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP).
Vanguard Industrials ETF (VIS)
The industrial sector is set for a comeback in 2021 and Vanguard Industrials ETF (NYSEARCA:VIS) is an outstanding fund to take advantage of the potential opportunity.
The December 2020 Manufacturing PMI on the ISM Report points to a healthy 2021 for the industrial sector with a strong reading of 60.7 (anything 50 or over is positive). Put simply, when world economies are moving forward, the industrial sector can be among the greatest beneficiaries of growth.
The VIS portfolio tracks the MSCI US Investable Market Industrials 25/50 Index, which consists of about 350 large-cap U.S. stocks in the industrials sector, such as Honeywell International (NYSE:HON), Union Pacific (NYSE:UNP) and United Parcel Service (NYSE:UPS).
Vanguard Real Estate ETF (VNQ)
The real estate sector took a hit in 2020 but has potential to make a comeback in 2021, which makes Vanguard Real Estate ETF one of the best Vanguard index funds to consider buying now.
It doesn’t take a big stretch of the imagination to see how real estate would suffer in 2020 but have a much better 2021. Think about residential and industrial real estate businesses and you’ve only touched on the entire real estate sector.
VNQ tracks a benchmark of real estate investment trusts (REITs), which consists of U.S. businesses in a range of real estate sub-sectors, including but not limited to residential, industrial, healthcare and specialized REITs.
On the date of publication, Kent Thune did not personally hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.