Picking stocks that will perform well will remain a challenge throughout 2023. With macroeconomic headwinds continuing, volatility is likely to be sustained. One way to navigate uncertain times is to gain exposure to exchange traded funds. By having a small portfolio of ETFs, investors can generate returns that comfortably beat inflation. With an attractive expense ratio, there are some quality vanguard ETFs that investors can consider. This column discussed three of the best Vanguard ETFs to buy for 2023.
If I had to focus solely on equities, I would be overweight blue-chip stocks through the year. In line with this view, I have a quality corporate bond and large-cap ETF in this grouping. Additionally, 2022 was a year of massive valuation compression for growth stocks. I think 2023 is likely to be a year of consolidation, followed by a reversal rally. Therefore, I think it makes sense to consider exposure to a growth stock ETF.
Here are three of the best Vanguard ETFs to buy. I believe that a small portfolio of these ETFs will comfortably beat inflation and index returns, at least over the next year.
|Vanguard Intermediate-Term Corporate Bond ETF
|Vanguard Large-Cap ETF
|Vanguard Growth ETF
Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
The World Bank has warned that the global economy might be headed for a second recession in three years. This is likely to translate into a risk-off trade as investors focus on capital preservation. Accordingly, the Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) looks attractive, considering this macroeconomic outlook.
This ETF focuses on high-quality corporate bonds. With a low-beta and sustainable income, it’s among the best Vanguard ETFs to battle this current macro environment. Just to put things into perspective, the ETF has a 30-day SEC yield of 5.16%. As inflation eases on a relative basis, the returns seem attractive considering the level of risk investors are taking buying into this fund.
In terms of credit quality, the ETF has 41.1% exposure to A rated bonds and 54.5% exposure to BBB rated bonds. This exposure is largely weighted towards finance and industrials. However, I don’t see that as a concern, as the bonds held in this fund largely consist of companies with high-quality balance sheets and healthy cash flows.
Vanguard Large-Cap ETF (VV)
When investors look at the recent risk-off trade in the markets, quality corporate bonds, blue-chip stocks, and precious metals are common investment themes. The Vanguard Large-Cap ETF (NYSEARCA:VV) is a good way to consider exposure to blue-chip stocks.
One reason I like this ETF is its annualized dividend of $2.89, which implies a dividend yield of 1.59%. It’s worth noting that over the past year, the market price of VV has declined by 19.68%. However, over a 5- and 10-year period, the ETF has delivered annualized returns of 9.15% and 12.37% respectively.
It’s also worth noting that the ETF provides significant (26.1%) exposure to the technology sector. With tech stocks looking oversold, this ETF seems poised for a reversal rally. The VV ETF currently comes with a price-earnings ratio (based on weighted stock holdings) of 20.5-times, indicating that the valuations of companies held in this ETF are attractive, limiting downside exposure.
Vanguard Growth ETF (VUG)
The Vanguard Growth ETF (NYSEARCA:VUG) would also be in my list of best Vanguard ETFs for 2023. Last year has been worth forgetting for growth stocks. With numerous downward revisions in earnings guidance coupled with tight monetary policies, valuations have reasonably ben adjusted lower. Indeed, the VUG ETF has corrected by 33% in the last 12 months.
That said, I believe that the current year will be better for growth stocks. The worst seems to be discounted in the valuations of many companies held in this fund. This makes VUG ETF attractive, as it gives investors exposure to some of the largest growth stocks in the world.
The stocks in the ETF have a weighted average price-earnings ratio of 28.4-times. Over the past five years, the average annual earnings growth rate for the companies in this ETF averaged 26.8%. Thus, these are companies that are attractively-priced, on a PEG ratio basis.
The ETF is also overweight technology stocks, while providing considerable exposure to the consumer discretionary sector. From oversold levels, VUG ETF is likely to bounce back in 2023.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.