Although they tend to fly under most investors' radar, exchange-traded funds are beginning to attract more inflows. In 2020, Investors injected $762.9bn into exchange-traded funds bringing the asset class to over $8trn market capitalization. Interestingly, the Vanguard Group controls 25% of the ETF market, just behind the world’s largest asset manager, Blackrock, which controls 39%. ETFs offer investors an opportunity to invest in a diversified portfolio with little capital and without paying huge management fees as is done in mutual funds. In this post, we'll look at the ten best Vanguard ETFs to buy in 2021.
What is a Vanguard ETF?
Vanguard exchange-traded funds (ETFs) are a class of funds offered by the Vanguard Investment Group. An ETF is a portfolio of stocks or any other asset that is traded as a single unit of investment, and just like stocks, ETFs are freely traded on the exchange during market hours. ETFs make it possible to have an investment portfolio without going through the hassle of finding individual companies to invest in.
The funds mostly track different indexes in the various financial markets — from bonds to stocks and commodities — across the major economies. Some also track specific sectors of the stock market, such as the energy, financial, utility, and technology sectors. Because the funds are spread across sectors and asset classes, Vanguard ETFs enable investors to diversify and hedge against volatility.
More than 50 Vanguard ETFs are traded, like shares, on major stock exchanges, such as the New York Stock Exchange (NYSE) or Nasdaq. Their underlying indexes cover both individual sectors, such as materials and energy, and domestic and international indexes.
In the last decade, 88% of Vanguard's ETFs have outperformed their peer-group averages. In 2019, almost all (95%) Vanguard ETF Shares traded through a Vanguard Brokerage Account were executed better than the quoted market price.
Invest in Vanguard ETFs in 3 steps
Choose the Vanguard ETFs to buy
The Vanguard Group offers different ETFs that track different markets and sectors, as well as those that serve unique purposes. So, you can have targeted funds, balanced funds, and a broad market index tracking a particular sector. Choosing the ETF to trade depends on your objective, but you may also use the historical performance of the funds to narrow down the list.
Open a trading account
You can either open an account with Vanguard and buy directly from the firm or open a brokerage account with an online broker who will buy the ETF on your behalf. Many online brokers now offer commission-free ETF trading.
Place your trade
After opening and funding your trading account, you can start placing your trade orders. Remember to have a trading strategy before you place any trade. Have a clearly defined entry and exit plan and stick to it.
Where can I trade Vanguard ETFs?
You can buy Vanguard ETFs directly from the firm if you own a Vanguard Brokerage Account. Trading Vanguard ETFs through this platform is commission-free. You can also trade this financial product through brokerages as most brokerages offer their clients the opportunity to trade Vanguard ETFs. However, the latter option (trading through brokerages) is better for investors if given a choice as you can use it to borrow funds from the broker for investing in other assets. In view of this, we’ve shortlisted our top 3 online brokers in the table below.
Best Vanguard ETFs to buy now
Based on returns, expense ratio, and asset size, these are the best Vanguard ETFs to buy in 2021. The top10 Vanguard ETFs include:
- Vanguard Total Stock Market (VTI)
- Vanguard S&P 500 (VOO)
- Vanguard FTSE Developed Markets (VEA)
- Vanguard 500 Index (VFIAX)
- Vanguard Equity-Income (VEIPX)
- Vanguard S&P 500 Value ETF (VOOV)
- Vanguard Emerging Markets Select Stock (VMMSX)
- Vanguard Value ETF (VTV)
- Vanguard High Dividend Yield Index Fund ETF Shares (VYM)
- Vanguard Mega Cap Growth ETF (MGK)
Vanguard Total Stock Market (VTI)
VTI tracks the CRSP US Total Market Index's performance, which represents all public listed stocks in the United States. by tracking the index, the fund holds a broadly diversified basket of securities that reduces volatility. VTI has $1.08trn worth of assets under its management. The fund has appreciated by 19% in the last year.
Vanguard S&P 500 (VOO)
VOO tracks the performance of the S&P 500, the index which is composed of stocks of the most capitalized U.S. companies. The fund holds each stock in approximately the same proportion as its weighting in the index. The total AUM for the fund is $630.6bn, and the fund's share price has appreciated by 15.28% in the last year.
Vanguard FTSE Developed Markets (VEA)
VEA tracks the performance of the FTSE Developed All Cap ex U.S. Index — a market-capitalization-weighted index made up of about 3873 common stocks of large-cap, mid-cap, and small-cap companies located in Canada, Europe, and the Pacific region. The fund, which has $137.8bn worth of assets under its management, holds each stock in approximately the same proportion as its weighting in the index. The VEA has appreciated by 17% in the last six months.
Vanguard 500 Index (VFIAX)
The Vanguard 500 Index, which was Vanguard's flagship index fund, tracks the S&P 500. The fund’s annual average over a 10-year period stood at 13.7%, which outperforms 88% of its peers. The total AUM for the fund is $630.67bn, and its share price has appreciated by 16.7% in the last three months.
Vanguard Equity-Income (VEIPX)
Considering the current rotation into a value-based strategy from a growth-based model, VEIPX should be among this year’s top performers. The Vanguard Equity-Income is a high-quality, low-cost fund that provides exposure to U.S. equities in the large and mid-cap value space. The total AUM of the fund is $39.8bn. VEIPX has appreciated by 41.7% in the last year.
Vanguard S&P 500 Value ETF (VOOV)
VOOV tracks the performance of the S&P 500Â Value Index, which comprises large-cap value companies such as Johnson & Johnson, JP Morgan, and Berkshire Hathaway. VOOV has an expense ratio of 0.15% and a dividend yield of 2.34%. The fund has $1.7bn worth of assets under its management. Its share price has appreciated by 15.3% in the last three months.
Vanguard Emerging Markets Select Stock (VMMSX)
VMMSX was established in 2011. The fund invests in shares of small, mid-sized, and large companies located in emerging markets. THE total AUM of the fund is $912.01m. The fund's Year-to-Date performance is 9.57%, while its 5-Year Average Return stands at 4.93%. The fund has an expense ratio of 0.93%.
Vanguard Value ETF (VTV)
VTV tracks the performance of the CRSP US Large-Cap Value Index, a broadly diversified index composed of large-capped value stocks. VTV has an expense ratio of 0.04% and a dividend yield of 2.43%. The fund has $97.3bn worth of assets under its management, while its share price has appreciated by 16.5% in the last six months.
Vanguard High Dividend Yield Index Fund ETF Shares (VYM)
VYM tracks the performance of the FTSE High Dividend Yield Index, which is composed of companies that pay high dividend yields. The fund established in 2006 has an expense ratio of 0.06% and a dividend yield of 3.03%. The fund has $40.01bn worth of assets under its management, and its share price has appreciated by 14% in the last three months.
Vanguard Mega Cap Growth ETF (MGK)
MGK tracks the performance of the CRSP US Mega Cap Growth Index, a float-adjusted, market-weighted index that tracks the performance of mega-cap growth stocks in the United States. The fund, which was established in 2007, has a total AUM of $9.8bn, an expense ratio of 0.07%, and a dividend yield of 0.65%. MGK has appreciated by 32.3% in the last one year.
Expert tip on investing in Vanguard ETFs
When investing in Vanguard ETFs, to reduce volatility and sharp price turns, it is better to go for funds that are diverse in assets and cover a broad category. ETFs that track broad market indexes are preferable.
Why trade Vanguard ETFs?
Trading Vanguard ETFs are beneficial due to various reasons. Firstly, they are low-cost investment vehicles because they allow investors to purchase a basket of shares in a single transaction. As such, it allows investors to build a diversified portfolio with low transaction costs.
Secondly, because most ETFs are passively managed and realize fewer capital gains, they tend to be more tax-efficient than other asset classes, such as mutual funds and stocks.
Thirdly, dividends of the companies in an open-ended ETF are reinvested back, thus, compounding capital gains over a long-term horizon.
Frequently Asked Questions
The Vanguard Total Stock Market (VTI)
Yes, the Vanguard ETF is a good investment right now, considering the market's volatile nature.
Anyone of legal age can invest in Vanguard ETF.
A share is a unit of ownership in the stock of one company, while an ETF is a basket of stocks of different companies traded under one investment vehicle.
Yes, Vanguard ETFs are very good for beginners.
As of 2020, the Vanguard ETF industry had more than $6.2 trillion in assets under management.