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There are plenty of stocks out there. On any given day, thousands are rolled out with the premise of soaring prices. And with commission-free trades now ubiquitous, there has been a surge in investor interest in buying — or perhaps even trading — individual stocks.
In my Profitable Investing, a publication approaching its 32nd year in publication by InvestorPlace, I continue to provide market evaluations and guidance. And in turn, I provide an ongoing selection of individual stocks and bonds in varied industries all backed up with extensive fundamental research and explanation. But I also provide subscribers indexed funds that replicate the core of my overall macro strategies of the model portfolios.
Vanguard continues to evolve from its traditional “trust us” business model of offering actively managed open-end funds which seeks to just rake in cash on an ongoing basis from individuals. In turn it is now providing active investors the better ability to invest in targeted sectors of stocks and bonds in indexed exchange-traded funds (ETFs).
These Vanguard funds can be a whole lot more efficient and a whole lot more inexpensive in fees.
Here is my lineup of how I would build a portfolio utilizing Vanguard funds:
- Vanguard High Dividend Yield ETF (NYSEARCA:VYM)
- Vanguard ESG US Stock ETF (CBOE:ESGV)
- Vanguard Real Estate ETF (NYSEARCA:VNQ)
- Vanguard Utilities ETF (NYSEARCA:VPU)
- Vanguard Information Technology ETF (NYSEARCA:VGT)
- Vanguard Health Care ETF (NYSEARCA:VHT)
- Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT)
- Vanguard Tax-Exempt Bond ETF (NYSEARCA:VTEB)
Vanguard Funds: Vanguard High Dividend Yield ETF (VYM)
Source: VYM Total Return — Source: Bloomberg
The starting point for general stocks is the Vanguard High Dividend Yield ETF. This is an indexed ETF which is focused on U.S.-listed stocks. And its holdings pay higher-than-average dividends nearly all in the U.S. market. This is my more measured approach to the S&P 500, as the higher weighting on dividends provides a lesser risk to downturns as well as volatility.
You’ll note that over the past 10 years, the Vanguard ETF has generally provided more consistent total return including dividend income. It yields 4.02%, which is more than double the yield for the general S&P 500 at 1.7%.
This is a good base for sustained growth and income over time.
Vanguard ESG US Stock ETF (ESGV)
Source: Vanguard ESG US Stock ETF (ESGV) & S&P 500 Total Return — Source: Bloomberg
ESG stands for environmental, social and governance. And it has had a squishy reputation as not really being about making money, but rather pursuing certain agendas. Dr. Milton Friedman from the University of Chicago, a Nobel Prize-winning economist that I have studied, listened to and had the privilege of meeting before his death, was highly critical of any business endeavor that went beyond shareholder value.
And ESG stocks and funds had been laggards for years in the markets. But that is changing.
Institutions are facing increasing demands to make their investment portfolios more ESG compliant. This in turn is forcing more companies to become more ESG compliant to both avoid being dropped or to make them more attractive to be bought and held.
And it is showing up more recently in leading ESG indices which are outperforming the S&P 500 in total return.
The Vanguard ESG US Stock ETF came to the market in 2018. And since then it has outperformed the S&P 500 with a return of 28.15% to 22.05%.
Even if ESG might not be your thing, it is right for the markets. You should buy this pick on my list of Vanguard funds.
Vanguard Funds: Vanguard Real Estate ETF (VNQ)
Source: Vanguard Real Estate ETF (VNQ) Total Return — Source: Bloomberg
Now I move the stock allocation further into the next sector of real estate investment trusts (REITs). This is done with the Vanguard Real Estate ETF.
REITs continue to benefit from a growing U.S. economy fueling property demand and better rental income. And with low inflation, funding costs are reduced, improving profitability.
REITs continue to provide more lower-risk growth as they mainly focus on U.S.-centric assets. And while some sectors in REITs such as hospitality, retail and office properties have been severely hindered, the bulk of REITs have been a good source of income and growth. And as noted above, low inflation and rising revenues — even with the novel coronavirus — feed more valuable dividend income.
With a dividend yield of 3.76%, the ETF out-pays the S&P 500 by a significant margin. With consistency based on real assets and defended dividend income, REITs in the ETF are a great way to achieve measured growth with higher income.
Vanguard Utilities ETF (VPU)
Source: Vanguard Utilities ETF (VPU) Total Return — Source: Bloomberg
Next, I move to another defensive source for growth and income in the U.S. market with utilities. And this is done with the Vanguard Utilities ETF. Like for REITs, U.S. utilities are insulated from global woes and continue to capitalize on the post-pandemic economic recovery.
The best utilities are combinations of regulated local services and unregulated wholesale businesses. The combination of dependable revenues, profit margins and added growth and income from additional unregulated operations makes for a great way to generate steady income and dividends with growth over time.
The returns for VPU over the trailing 10 years have generally been more consistent than for the S&P 500. And with its yield of 3.93% and proven returns of 184.22% over the past 10 years for an average annual equivalent of 11%, it makes for a great addition to a portfolio of Vanguard funds.
Vanguard Funds: Vanguard Information Technology ETF (VGT)
Source: Vanguard Information Technology ETF (VGT) Total Return — Source: Bloomberg
Now I come to the exciting part of the U.S. market in information technology. Technology is a big growth engine for the U.S. economy. And the stocks in this segment reflect optimism for higher returns. I accomplish this allocation with the Vanguard Information Technology ETF.
Technology is the alchemy of the market. Whether products come from silicon or the ether in the minds of apps and software developers, profits can be achieved in momentous amounts.
But not all big ideas work, and there are always new products and services making the market volatile.
So, while investors need exposure, it should be done as part of a broader portfolio.
The technology market has been a good one, and VGT has turned in a return over just the past 10 years of 618.25%. That outpaces the S&P 500 by more than 2-to-1.
Buy and own VGT as part of a portfolio of Vanguard funds.
Vanguard Health Care ETF (VHT)
Source: Vanguard Health Care ETF (VHT) Total Return — Source: Bloomberg
The Covid-19 mess has been an awakening for healthcare companies and the stocks behind them. The drive for treatments and vaccines not only has drawn attention to the leaders in this segment, but has also resulted in improving revenues and investor interest.
The Vanguard Health Care ETF is my go-to healthcare ETF.
Why? You can see the answer in the companies in the sector. Healthcare was one of the only segments of the S&P 500 that generated an increase in earnings during the second quarter. Plus, these top companies issued outlooks for good performance in the rest of 2020. And it shows in the companies in the sector reporting for the second quarter with healthcare being one of the few segments inside the S&P 500 Index that generated an increase in earnings for the second quarter with compiled expectations for further good performance through year end and into 2021.
No wonder that VHT, with a total return of 377.67% over the past 10 year, has outperformed the S&P 500. And for a healthier portfolio, VHT is a smart allocation.
Vanguard Funds: Vanguard Intermediate-Term Corporate ETF (VCIT)
Source: Vanguard Intermediate-Term Corporate Bond ETF (VCIT) Total Return — Source: Bloomberg
Fixed income in the U.S. continues to be very good. The U.S. has very low inflation. This has led to lower yields and higher bond prices overall. And with the Federal Reserve’s response to the market chaos earlier this year, bonds have been bigger performers, beating many stock-market sectors.
But there are two sectors which I continue to advocate for: corporate bonds and municipal bonds.
Corporate bonds continue to benefit from the growing economy — aiding credit conditions of businesses and bolstering their bond prices. And until recently, issuance has been slower, aiding supply and demand for higher prices.
My allocation to this market is in the Vanguard Intermediate-Term Corporate Bond ETF. This ETF has returned 68.43% over the trailing 10 years, significantly outpacing the general U.S. bond market as tracked by the Bloomberg Barclays US Aggregate Index.
Tax Exempt Bond ETF (VTEB)
Source: Vanguard Tax-Exempt Bond ETF (VTEB) Total Return — Source: Bloomberg
Then for municipal bonds I have the Vanguard Tax-Exempt Bond ETF. Municipal bonds have been gaining like corporates on the recovering economy. Tax revenues are better than expected, even in the aftermath of Covid-19. Some localities are reporting flat or higher sales tax revenues during lockdowns. Low inflation aids bonds as well.
VTEB has been a good performer in the municipal bond market segment over the trailing five years.
It has swiftly recovered and advanced after the coronavirus-driven drop in nearly all markets in February and March. And remember that it offers a lot more yield than U.S. Treasurys on a tax-equivalent basis. Because of these reasons, I see further price growth through year end and into 2021.
Note: Even if you invest in qualified tax-free investment accounts, I still recommend the tax-free ETF for total return and not just for tax-free income.
Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine … one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.