In this article, we will take a look at the 10 best Vanguard ETFs for portfolio diversification.
Exchange-traded funds, or ETFs, are continuing to gain traction in the investing world as investors look to shield themselves from market volatility. ETFs provide a smart way to increase exposure to the stock market and offset losses via diversification. ETFs are also preferred by retail investors since they are more tax-friendly. According to a Bloomberg report, in 2022, despite the market downturn, close to 400 new ETFs were launched and over half a trillion dollars were invested in these investment vehicles. The Bloomberg report also quoted Bryon Lake, global head of ETF Solutions at JPMorgan Asset Management, who said that ETFs give investors more variety and control.
A report by Deutsche Asset Management says that ETFs grew to prominence during the summer of 2015, when ETF assets under management worldwide surpassed $3 trillion for the first time. The report said that the biggest reason behind the popularity of ETFs is transparency, liquidity and low cost.
The report also said that ETFs are better than mutual funds when it comes to costs. According to the report, at the end of 2014, the asset-weighted average total expense ratio for US index-tracking equity ETFs was around a third that of equity mutual funds, while the asset-weighted average total expense ratio for US index-tracking fixed income ETFs was less than a half that of fixed income mutual funds.
Our Methodology
For this article, we did thorough research on the ETF products offered by Vanguard and shortlisted the top 10 ETFs that offer portfolio diversification. We picked ETFs from a variety of areas, including energy, tech, dividends, emerging markets, among others. These ETFs allow investors to gain exposure to both stable and volatile segments of the market. We also added total market ETFs in our list since there’s an overwhelming sentiment among market analysts that the market is expected to turn the corner in 2023 or 2024. When the market rebounds, these total market ETFs would probably gain value.
Best Vanguard ETFs for Portfolio Diversification
10. Vanguard 500 Index Fund ETF (NYSE:VOO)
Number of Hedge Fund Holders: 22
VOO is one of the best Vanguard ETFs to bet on the broader market, which is expected to turn the corner sooner or later. Vanguard 500 Index Fund ETF (NYSE:VOO) invests in the S&P 500 Index, which represents 500 of the biggest companies in the US. Vanguard 500 Index Fund ETF (NYSE:VOO) itself provides pretty solid diversification across various market sectors. For example, the consumer discretionary sector accounts for about 10% of the total ETF. Similarly, healthcare accounts for 15% of Vanguard 500 Index Fund ETF (NYSE:VOO) while information technology takes about 26% of the total holdings.
The biggest holding of the Vanguard 500 Index Fund ETF (NYSE:VOO) is Apple Inc. (NASDAQ:AAPL), one of the most popular stocks among the 920 elite hedge funds tracked by Insider Monkey. Warren Buffett’s hedge fund Berkshire Hathaway Inc. (NYSE:BRK-B) has a $123 billion stake in Apple Inc. (NASDAQ:AAPL) as of the end of the third quarter.
Recently, it was reported that Apple Inc. (NASDAQ:AAPL) was planning to end its reliance on Broadcom as Apple Inc. (NASDAQ:AAPL) eyes to build its own chips.
9. Vanguard Total Stock Market Index Fund ETF (NYSE:VTI)
Number of Hedge Fund Holders: 15
Vanguard’s Total Stock Market Index ETF is one of the best ways to diversify your portfolio, especially during troubled times. The ETF invests in small-,mid- and large-cap stocks. The ETF also gives you ample exposure to both growth and value stocks. The ETF is currently invested in over 4,000 stocks, which shows the level of diversification investors can enjoy with this ETF. Technology accounts for about 24% of the total holdings of this ETF.
Among the notable holdings of this fund is Alphabet Inc. (NASDAQ:GOOGL), one of the most promising tech companies in the world. Alphabet is also extremely popular among the elite hedge funds tracked by Insider Monkey, as 196 hedge funds ended the third quarter with the stock in their portfolios, compared to 191 funds in the previous quarter.
Several analysts are giving positive ratings for Alphabet Inc. (NASDAQ:GOOGL). Recently, Neuberger Berman senior research analyst Daniel Flax said that Alphabet is a strong play due to its strengths in advertising. He also mentioned Meta Platforms, Inc. (NASDAQ:META) in the same note but said that he prefers Alphabet Inc. (NASDAQ:GOOGL) over Meta Platforms, Inc. (NASDAQ:META).
8. Vanguard Small-Cap Index Fund ETF (NYSE:VB)
Number of Hedge Fund Holders: 5
Investing in small-cap stocks is one of the best ways to diversify our portfolio. The Vanguard Small-Cap Index ETF (NYSE:VB) gives you exposure to some of the top small-cap companies trading in the US. Investing in this small-cap ETF would also shield investors from the volatility that comes with investing in individual small-cap stocks. The biggest chunk of this Vanguard Small-Cap Index ETF (NYSE:VB) goes to industrials stocks, which account for about 20% of the total holdings.
The biggest holding of the Vanguard Small-Cap Index Fund is Steel Dynamics Inc. (NASDAQ:STLD). Steel Dynamics Inc. (NASDAQ:STLD) owns a $466 million stake in Vanguard Small-Cap Index Fund ETF. In December, Steel Dynamics Inc. (NASDAQ:STLD) said that it expects its Q4 EPS to come in between $3.34 to $3.38 and adjusted EPS to total in between $4.10 to $4.14. Steel Dynamics Inc. (NASDAQ:STLD) also announced that it had purchased about $338 million, or two percent, of its common stock in Q4 through December 15.
7. Vanguard Energy Index Fund ETF (NYSE:VDE)
Number of Hedge Fund Holders: 6
Anyone looking to diversify their portfolio and get ready for 2023 should be invested in the energy sector, which notched huge gains in 2022 and is set to rake in more profits this year as the global energy demand is expected to skyrocket. Vanguard Energy Index Fund ETF (NYSE:VDE) invests in companies involved in the exploration and production of energy products such as oil, natural gas, and coal. Vanguard Energy Index Fund ETF (NYSE:VDE) is invested in over 100 stocks and the integrated oil and gas sector accounts for about 40% of the Vanguard Energy Index Fund ETF (NYSE:VDE)’s total holdings.
The biggest holding of this energy ETF is Exxon Mobil Corporation (NYSE:XOM). The ETF has a $2.4 billion stake in the company. Exxon Mobil Corporation (NYSE:XOM) has posted record returns in 2022. XOM is also a dividend payer with several years of dividend increases under its belt. A total of 75 hedge funds tracked by Insider Monkey reported having stakes in Exxon Mobil Corporation (NYSE:XOM) as of the end of the third quarter.
6. Vanguard Health Care Index Fund ETF (NYSE:VHT)
Number of Hedge Fund Holders: 7
The healthcare sector is one of the best places to invest in for defensive investors. The Vanguard Health Care ETF (NYSE:VHT) invests in companies that offer healthcare products, services, technology, or equipment. About 28% of Vanguard Health Care ETF (NYSE:VHT)’s holdings belong to the pharmaceuticals sector, while 18% are from the biotech sector. The biggest holding of this healthcare ETF is UnitedHealth Group Inc. In November, UnitedHealth (NYSE:UNH) reaffirmed its FY 2022 EPS and adj. EPS guidance. UnitedHealth (NYSE:UNH) said it expects its full-year EPS to come in between $20.85 to $21.05, while adj. EPS was expected to be between $21.85 to $22.05.
Hedge fund sentiment for UnitedHealth Group Inc. (NYSE:UNH) is strong. As of the end of the third quarter, 110 hedge funds in Insider Monkey’s database of 920 funds reported having stakes in UnitedHealth Group Inc. (NYSE:UNH), compared to 91 funds in the previous quarter.
5. Vanguard Financials Index Fund ETF (NYSE:VFH)
Number of Hedge Fund Holders: 5
2022 showed that the financial sector is one of the best–positioned industries to thrive in a rising interest rate environment. The industry is also full of stable, dividend-paying stocks. The Vanguard Financials Index Fund ETF (NYSE:VFH) is one of the best Vanguard ETFs for portfolio diversification. Vanguard Financials Index Fund ETF (NYSE:VFH) invests in financial services companies. Some of the biggest holdings of the ETF include JPMorgan, Wells Fargo and Bank of America (NYSE:BAC), America’s top three banks. Its biggest holding is Berkshire Hathaway Inc. (NYSE:BRK-B), in which the ETF has an $877 million stake.
On January 10, Odeon Capital’s Dick Bove upgraded Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC), among several other stocks. The analyst said:
“I, like many others, believe there will be a recession, but I do not believe it will be severe. The time has come to focus on the fact that there has been a cycle change and this change definitely benefits banking.”
4. Vanguard Emerging Markets Stock Index Fund ETF (NYSE:VWO)
Number of Hedge Fund Holders: 12
One of the best ways for portfolio diversification is to invest in emerging markets. These high-growth markets are continuing to post record growth numbers despite the macroeconomic volatility. The Vanguard Emerging Markets Stock Index ETF invests in major emerging markets including Brazil, Russia, India, Taiwan, and China. Vanguard Emerging Markets Stock Index Fund ETF (NYSE:VWO) price as of January 11 is $34. This means investors can pile into major emerging markets of the world in budget via this ETF, which has gained about 2% over the past six months. The total number of stocks the Vanguard Emerging Markets Stock Index Fund ETF (NYSE:VWO) is invested in is over 5,000. Among the top holdings of this ETF are Taiwan Semiconductor Manufacturing, Tencent Holdings and Alibaba Group Holding Ltd.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the most important semiconductor stocks in the world. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) recently gained even after Vanguard Emerging Markets Stock Index Fund ETF (NYSE:VWO) posted a revenue decline for December. Taiwan Semiconductor makes chips for several major companies in the world, including Apple Inc. (NASDAQ:AAPL), Advanced Micro Devices, Inc. (NASDAQ:AMD) and NVIDIA Corporation (NASDAQ:NVDA).
A total of 87 hedge funds tracked by Insider Monkey reported having stakes in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), compared to 72 funds in the previous quarter. The total value of these stakes was $13.2 billion.
3. Vanguard Growth Index Fund ETF (NYSE:VUG)
Number of Hedge Fund Holders: 12
While growth stocks brought pain for investors in 2022, analysts are hopeful that an expected market rebound in 2023 is going to benefit growth stocks with solid fundamentals. Vanguard Growth Index Fund ETF (NYSE:VUG) is one of the best ETFs to buy for portfolio diversification. Tesla is among the most notable holdings of the Vanguard Growth Index ETF (NYSE:VUG). The Vanguard Growth Index ETF (NYSE:VUG) has a $4.3 billion stake in Vanguard Growth Index Fund ETF.
Tesla Inc. (NASDAQ:TSLA) continues to remain on the radar of famous growth investors despite losses. On January 10, it was reported that Cathie Wood’s bought another 100,982 shares of Tesla Inc. These shares have a total value of a whopping $12 million. As of the end of the third quarter, Cathie Wood’s fund had a $1.1 billion stake in the company.
Overall, hedge funds are bullish on Tesla Inc. (NASDAQ:TSLA). At the end of the September quarter, 88 funds reported having stakes in the EV company, compared to 73 funds in the previous quarter.
2. Vanguard High Dividend Yield ETF (NYSE:VYM)
Number of Hedge Fund Holders: 8
Dividend stocks were among the star performers in 2022 and investors are expected to continue to pile into dividend stocks for certainty and regular cash. The Vanguard High Dividend Yield ETF (NYSE:VYM) tracks the performance of the FTSE High Dividend Yield Index. Vanguard High Dividend Yield ETF (NYSE:VYM) is invested in about 440 stocks. Financials account for about 20% of the total ETF holdings. The biggest holding of Vanguard High Dividend Yield ETF (NYSE:VYM) is Johnson & Johnson.
Johnson & Johnson (NYSE:JNJ) has a dividend yield of over 2.5% as of January 11.
A total of 85 hedge funds in Insider Monkey’s database of 920 funds had stakes in Johnson & Johnson (NYSE:JNJ) as of the end of the third quarter.
1. Vanguard Consumer Staples ETF (NYSE:VDC)
Number of Hedge Fund Holders: 7
The consumer staples sector is considered among the safest sectors during recession since it consists of companies that continue to see consumer demand even during market downturns. This Vanguard ETF (NYSE:VDC) invests in companies which sell non-discretionary items. The biggest holding of the ETF is Procter & Gamble (NYSE:PG). Procter & Gamble (NYSE:PG) has been increasing its dividends consistently for the past 66 years.
A total of 69 hedge funds tracked by Insider Monkey reported having stakes in Procter & Gamble (NYSE:PG) as of the end of the third quarter.
You can also take a peek at Top Stocks in Each Sector and Dow 30 Stocks List 2022.
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Disclosure: None. 10 Best Vanguard ETFs for Portfolio Diversification is originally published on Insider Monkey.
