An exchange-traded fund (ETF) represents a basket of stocks or other securities, shares of which are sold on an exchange. While similar to mutual funds, there are differences. Unlike open-ended mutual funds, ETFs are traded on secondary markets, so you can buy or sell shares of the ETF at the exchange where it is traded. The ETF issuer is not involved in this transaction; its involvement is to allocate the portfolio of stocks within the ETF to track a stated index such as the S&P 500 Index.
In this guide, we describe our top picks from the list of ETFs offered by Vanguard in 2021.
Where Can I Trade ETFs?
Most broker accounts and other online trading platforms allow you to trade ETFs, and for some ETFs, this can include tax-efficient investment options such as an ISA or SIPP (in the UK). ETFs trade like individual stocks, so many of the features sought by investors in a stock-trading account are also relevant to ETF Investors.
We have identified some of the best brokers for trading ETFs in general and Vanguard ETFs in particular.
What is a Vanguard ETF?
The Vanguard Group Inc. is an American registered investment advisor based in Pennsylvania. It is the largest provider of mutual funds and the second-largest provider of exchange-traded funds in the world. Several mutual funds managed by Vanguard are ranked at the top of the list of US mutual funds by assets-under-management (AUM). Along with BlackRock and State Street, Vanguard is considered one of the “big three” index funds that dominate corporate America.
Founder and former chairman, John C. Bogle, is credited with creating the first index fund available to individual investors, and he was a proponent and major enabler of low-cost investing by individuals.
This company has $7.2 trillion assets under management and it offers 76 ETFs classified into five broad categories: US Bond ETFs, US Stock ETFs, International bond ETFs, International Stock ETFs, and Sector & Speciality ETFs.
Invest in Vanguard ETFs in 3 Steps
Open a Trading Account
The first thing to do is to open a trading account with an online broker. Make sure the broker allows you to trade your chosen assets (in this case ETFs), then compare the fees/commissions charged by the various brokers. Apply for an account with the broker — which might take only minutes — and satisfy the broker’s know-your-customer (KYC) requirements regarding identification.
Choose Vanguard ETFs
Your broker’s online platform will display a list of the ETFs (including Vanguard ETFs) that you can buy, and some broker platforms will provide you a comparative analysis of the returns of the different ETFs within the same segment. Select the ETFs which best suit your required returns and risk expectation.
Place Your Trade
When you’ve found the ETF you want, you can buy it from the broker in the same way that you would buy a stock: at a quoted price during market hours or at a maximum price by placing a limit order inside or outside of the market hours.
Best Vanguard ETFs to Buy Now
Based on returns, total assets under management, and prevailing market conditions, we have selected our top 10 Vanguard ETFs:
- Vanguard Growth ETF (VUG)
- Vanguard Information Technology ETF (VGT)
- Vanguard Consumer Discretionary ETF (VCR)
- Vanguard Extended Market ETF (VXF)
- Vanguard Large Cap ETF (VV)
- Vanguard ESG US Stock ETF (ESGV)
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Health Care ETF (VHT)
- Vanguard Value ETF (VTV)
- Vanguard FTSE Emerging Market ETF (VWO)
1. Vanguard Growth ETF (VUG)
VUG is a passively managed fund that selects stocks based on six growth factors: expected long-term growth in EPS, expected short-term growth in EPS, three-year historical growth in EPS, three-year historical growth in sales per share, current investment to asset ratio, and return on assets. The expense ratio of the fund is just 0.04% and the AUM stands at $147.3 billion at the time of writing. The fund has provided a decent average annual return of 25.76% and 22.42% for 3 years and 5 years respectively. In short, VUG is an excellent choice for investors seeking diversification in their portfolios.
2. Vanguard Information Technology ETF (VGT)
VGT is one of the most diverse market-cap-weighted technology funds available. It represents the market including more small and micro-caps than most of the other broad tech sector funds while still managing to keep all–in costs extremely low. The expense ratio of the Fund is 0.10% and the AUM is $47.5 billion at the time of writing. Tech giants stocks like Apple Inc. and Microsoft Corporation comprise approximately 35% of the fund’s net assets. The fund took a big dip in February 2020 due to coronavirus pandemic but then bounced back to even higher values from May 2020 onwards.
3. Vanguard Consumer Discretionary ETF (VCR)
VCR delivers exposure to the consumer discretionary sector, as defined by the Global Industry Classification Standard (GICS), excluding media and entertainment. It includes stocks of companies that manufacture products and provide services that consumers purchase on a discretionary basis. The fund holds 298 stocks at the time of writing, the ten largest of which contributes almost 55% of the total net assets. The expense ratio is 0.10% and the AUM was $6.3 billion at the end of March 2021. The fund has delivered a tremendous return of 26.58% and 22.15% for 3 years and 5 years respectively.
4. Vanguard Extended Market ETF (VXF)
VXF tracks an underlying index that is constructed by removing the S&P 500 companies from the S&P Total Market Index. The resulting portfolio consists of every stock from mid-caps to micro-caps. The total AUM of the fund is $106.1 billion at the end of March 2021. Of the 3,000+ stocks held by the fund, the top ten largest holdings account for 7.4% of the assets under management. The compounded annual growth rate (CAGR) for this ETF is 19.72% and 18.58% for 3 years and 5 years respectively.
5. Vanguard Large Cap ETF (VV)
VV provides exposure to a portfolio of large-cap US stocks. It holds an additional 300+ securities beyond the large-cap indices for additional diversification. VV is a great fund, with a long track record and a very low expense ratio of just 0.04%. The AUM stood at $34.5 billion at the end of March 2021, and the top ten holding stocks account for 25.9% of the total net assets. The fund has generated an average annual return of 19.26% and 17.83% for 3 years and 5 years respectively.
Expert Tip on Investing in Vanguard ETFs“ The major advantages of ETFs over individual stocks are diversification (to reduce your risk), liquidity (so that you can easily buy or sell at any time), and typically low expense ratios (because they are usually passively rather than actively managed). ”- Emmanuel Ekwomadu
Why Invest in Vanguard ETFs?
Vanguard ETFs have several advantages:
- The average expense ratio across Vanguard index mutual funds and ETFs is 73% less than the industry average.
- 82% of Vanguard funds and ETFs have performed better than the peer group averages over the last 10 years.
- Vanguard has been perfecting its benchmark selection and tracking skills since launching the first index fund for individual investors in 1976.
- Exchange-traded funds have surged in popularity because they offer investors a simple way to build a diversified portfolio with lower expense ratios than traditional funds.
Frequently Asked Questions
Equity shares (of company stocks) and ETFs are both traded on an exchange. However, an ETF represents a basket of several stocks., thus providing diversification.
ETFs are modern-day mutual funds that offer various advantages over traditional funds, including lower costs (because they’re passively managed) and convenience (because you can buy and sell throughout the trading day). Like traditional mutual funds, ETFs provide diversification and simplicity.
An inverse ETF goes up when the underlying stock index goes down, and vice versa. Theoretically, this allows an ETF investor to “go short” (benefit from falling prices) but inverse ETF returns do not track accurately if held for longer than a day. Also, bear in mind that while your maximum return is limited (if the underlying index falls to zero), your maximum loss is limitless (because the underlying index could go on rising forever).
ETFs derive their liquidity first from trading units in the secondary market (on a stock exchange) and secondly through the in-kind creation/redemption process which means that the liquidity of an ETF is actually the liquidity of the underlying shares.
No. Any asset class that has a published index and is liquid enough to be traded daily can be made into an ETF. Bonds, real estate, commodities, currencies, and multi-asset funds are all available in an ETF format.
Dividends received by an ETF are typically reinvested in the fund through the creation process, but some ETFs distribute dividends to investors.