Large-cap growth stocks have begun retreating throughout the latter half of the 12 months, influenced by expected rate of interest cuts and valuation concerns. Investors should pay close attention to those potential rate cuts, as they often profit small-cap and mid-cap stocks greater than their large-cap counterparts, given the previous’s greater reliance on financing to drive growth.
This market environment sets the stage for 3 Vanguard exchange-traded funds (ETFs) to potentially outperform throughout the second half of the 12 months. These three funds should benefit from a marketwide shift toward smaller, growth-oriented firms and other people offering attractive valuations. Armed with this background, let’s explore these three Vanguard stock ETFs intimately.
Vanguard Small-Cap Value Index Fund ETF Shares
The Vanguard Small-Cap Value Index Fund ETF Shares (NYSEMKT: VBR) tracks the CRSP US Small Cap Value Index. It has an SEC yield of two.1% and an expense ratio of 0.07%.
The ETFs five largest positions consist of management consultancy Booz Allen Hamilton Holding, constructing materials manufacturer Carlisle Cos., financial services provider First Residents BancShares, construction and facilities services firm EMCOR Group, and constructing products supplier Builders FirstSource.
At recent prices, the Vanguard Small-Cap Value Index Fund ETF Shares has gained 10.8% 12 months to this point, with most of those gains coming throughout the month of July. This recent rally will not be surprising, provided that small-cap value stocks often perform well when rates of interest fall.
What’s the essential appeal? This Vanguard ETF provides exposure to smaller firms with value characteristics, which could prove helpful if the market tilts toward undervalued growth equities throughout the second half of the 12 months.
Vanguard Mid-Cap Index Fund ETF Shares
The Vanguard Mid-Cap Index Fund ETF Shares (NYSEMKT: VO) tracks the CRSP US Mid Cap Index. It offers an SEC yield of 1.56% and a low expense ratio of 0.04%. The ETF’s top five holdings consist of electronic connector manufacturer Amphenol, aerospace systems supplier TransDigm Group, communications technology firm Motorola Solutions, energy producer Constellation Energy, and healthcare real estate investment trust Welltower.
The Vanguard Mid-Cap Index Fund ETF Shares has gained 8.41% 12 months to this point. Mid-cap stocks offer a balance between the stableness of large-caps and the expansion potential of small-caps. This ETF thus provides exposure to mid-sized firms which is able to benefit from changing rates of interest, while offering a greater margin of safety than its small-cap counterpart discussed below.
Vanguard Small-Cap Index Fund ETF Shares
The Vanguard Small-Cap Index Fund ETF Shares (NYSEMKT: VB) tracks the CRSP US Small Cap Index. This small-cap fund offers an SEC yield of 1.44% and an expense ratio of 0.05%. The ETF’s five largest positions consist of midstream energy infrastructure operator Targa Resources, footwear and apparel maker Deckers Outdoor, law enforcement technology provider Axon Enterprise, industrial software developer PTC, and semiconductor materials supplier Entegris.
The Vanguard Small-Cap Index Fund ETF Shares has jumped by 9.45% 12 months to this point. Small-cap stocks are inclined to be more volatile but offer higher growth potential than mid or large cap equities, especially during economic shifts. This ETF provides broad exposure to the small-cap market, potentially capitalizing on the segment’s historical responsiveness to rate changes.
Key takeaways
These three Vanguard ETFs provide focused exposure to market segments which is able to outperform within the approaching 12 months. More specifically, the expected rate of interest cuts throughout the latter a component of this 12 months could create an advantageous climate for small and mid-cap stocks.
Smaller growth firms may additionally benefit from a broader market shift toward value. Speaking thus far, tech giants like Nvidia have seen remarkably high valuations this 12 months, driven by the synthetic intelligence (AI) gold rush. This trend could reverse as AI investors begin to lock in profits and diversify right right into a broader range of growth stocks.
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George Budwell has positions in Vanguard Small-Cap Value ETF. The Motley Idiot has positions in and recommends Axon Enterprise, Constellation Energy, Nvidia, Vanguard Index Funds-Vanguard Mid-Cap ETF, and Vanguard Index Funds-Vanguard Small-Cap ETF. The Motley Idiot recommends Booz Allen Hamilton, PTC, Targa Resources, and TransDigm Group. The Motley Idiot has a disclosure policy.
3 Best Vanguard Stock ETFs to Buy in August was originally published by The Motley Idiot