Vanguard is known for its low-cost ETFs, mainly because they are extremely popular Vanguard S&P 500 ETF. However, there are dozens of great ETFs in Vanguard’s portfolio, and some of them could be very big winners in the coming years. Here are three in particular that are worth checking out right now.
Small-cap stocks have dramatically underperformed their large-cap counterparts for more than a decade. Given the performance of mega-cap tech stocks in recent years, this isn’t much of a surprise. As of October 31, the average stock in the Russell 2000 small-cap index traded at a price-to-earnings (P/E) ratio of 16.9, while the typical S&P500 The stock had a price-to-earnings ratio of about 27.
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However, there are reasons to believe that the valuation gap could narrow in the coming years. First, small caps are likely to be bigger beneficiaries of falling interest rates as they tend to be more reliant on borrowed money than their large cap counterparts, and could also see increased investor interest as ‘safe’ fixed income assets become less attractive. .
I am extremely optimistic about small caps in the coming years and have built up a position in the Vanguard Russell 2000 ETF (NASDAQ: VTWO) to capitalize on it. It has a minuscule expense ratio of 0.1% and no more than 0.5% of assets are invested in a single company.
Dividend stocks tend to perform better in a falling interest rate environment, and this is especially true for stocks with an above-average dividend yield. One of the best Vanguard ETFs you can buy to invest in these companies is the Vanguard High Dividend Yield Index Fund ETF (NYSEMKT: VYM).
In short, this ETF has an expense ratio of 0.06%, a yield of 2.7% and a portfolio of top companies that pay an above-average dividend yield. To name just a few of the 536 stocks in the portfolio, including top holdings Broadcom, JPMorgan ChaseAnd ExxonMobil.
If the Fed continues to cut rates, this group could be a big winner. Even if not, this is an ETF full of solid companies and would still be a great addition to your long-term portfolio.
Last but certainly not least, a good argument can be made that the financial sector could be the biggest winner in the coming years. Not only would the falling interest rate environment help lower deposit costs, but the new government created perhaps the best growth environment for banks in decades during its first term and could do the same this time.
