In this article, we will take a look at the 10 best Vanguard ETFs for portfolio diversification. To see more such ETFs, go directly to 5 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.
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Disclosure: None. 10 Best Vanguard ETFs for Portfolio Diversification is originally published on Insider Monkey.
