When it comes to investing in ETFs, the first place that many people turn to is Vanguard. With nearly $2 trillion in assets, it’s the 2nd largest ETF issuer behind only BlackRock’s iShares family of funds.
The reason why is pretty simple. No matter what category, theme or strategy an investor considers, Vanguard probably offers some of the cheapest ETFs available in that space. Of the 62 equity ETFs that Vanguard currently offers, 45 of them come with expense ratios of 0.10% or less.
Another thing that Vanguard has that works to its advantage is simplicity. They specialize in offering broad-based portfolio that mostly fit into one of four categories
- Market Cap
Vanguard also recently began offering ESG versions of two broad market ETFs – the Vanguard ESG U.S. Stock ETF (ESGV) and the Vanguard ESG International Stock ETF (VSGX) – for those interested in socially responsible investing.
The only real unique part of the Vanguard equity ETF lineup is its 6 ETF suite of factor ETFs, which were launched back in 2018. They’re unique because they seem so un-Vanguard-like. First of all, they’re factor ETFs. This is something that the company hasn’t offered in the past and is a step apart from their typical broad-based ETF strategy. Second, they’re actively-managed and the only such funds in the Vanguard lineup that aren’t index-based. They’re definitely an outlier and something I’ll discuss a little later as we get into the rankings.
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For core portfolio investing, Vanguard is simply one of the best. I talk often about how the best portfolios are built around ETFs that offer broad market coverage, are highly liquid and dirt cheap. With the exception of the factor ETFs, every fund in the Vanguard lineup has at least $500 million in assets, which is more than enough to make trading easy. Some of the smaller ETFs have trading spreads that are a little higher than I’d like to see, but almost every Vanguard ETFs checks all the boxes.
Ranking every Vanguard stock ETF comes with a bit of an asterisk since we’re measuring funds that invest in so many markets. Broad market ETFs, such as the Vanguard S&P 500 ETF (VOO) or the Vanguard Total Stock Market ETF (VTI), generally come with slightly lower fees, which gives them an advantage over something like the Vanguard Financials ETF (VFH). We’ll see this “broader is better” theme once we start digging into the rankings, but the majority of these ETFs would probably rank pretty highly, if not at #1, within their own peer groups.
Ranking The Vanguard ETFs
The variety of ETF choices makes distinguishing the best from the rest a little challenging. You’ve probably heard most financial pundits talk about focusing on funds with low expense ratios. That can certainly be a big factor in deciding which ETF to go with (it’s probably the most important factor, in my view), but there are a lot of things that could go into making the right choice.
That’s where I’m going to try to make things easier for you. Using a methodology that I’ve developed, which takes into account many of the factors that should be considered and weighting them according to their perceived level of importance, we can rank the universe of available ETFs in order to help identify the best of the best for your portfolio.
Now, this certainly won’t be a perfect ranking. The data, of course, will be objective, but judging what’s more important is very subjective. I’m simply going off of my years of experience in the ETF space in helping investors craft smart, cost-efficient portfolios.
Methodology & Factors For Ranking ETFs
Before we dive in, let’s establish a few ground rules.
First, all of the data is used is coming from ETF Action. They have gone through the ETF universe to identify and categorize those ETFs used here. There are many that qualify and we’ll be using their categorization as a starting point. Many thanks to them for opening up their vast database for my use.
Second, let’s run down the factors I used in the ranking methodology.
- Expense Ratio – This is perhaps the most important factor since it’s the one thing investors can control. If you choose a fund that charges 0.1% per year over a fund that charges 1%, you’re automatically coming out ahead by 0.9% annually. You can’t control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
- Spreads – This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it’s easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
- Diversification – Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund’s total assets go to just two stocks – ExxonMobil and Chevron. By buying XLE, you’re putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
- FactSet ETF Scores – FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I’m not going to copy and paste that work that they’re doing, but there is some influence there to make sure my rankings are on the right path.
There are a few other minor factors thrown into the mix, but these are the main factors considered.
One thing that is not considered is historical returns. Most ETFs are passively-managed and are simply trying to track an index, not outperform. ETFs shouldn’t be penalized for low returns simply because the index they’re tracking is out of favor at the moment.
I’m ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?
Being in the bottom half of the list doesn’t automatically make a fund “bad”. It simply means that due to a low asset base, a high expense ratio, a concentrated portfolio or some other factor, it poses additional costs or downside risks.
Best Vanguard Stock ETF Rankings
In very Vanguard fashion, every one of the top 30 ETFs has an expense ratio of 0.10% or less and the top 12 are all in the single digits. As is the case with many of my ETF rankings, the low cost cream rises to the top, including Vanguard’s two ETF giants.
You may be expecting the Vanguard S&P 500 ETF (VOO) to take the top spot, but it’s the Vanguard Total Stock Market ETF (VTI) that lands at #1. I’ve gone on the record in the past about how I feel that total market ETFs are better than S&P 500 ETFs due to their more expansive market coverage (even though VTI is still 88% large-cap). Don’t feel too bad for VOO though. It’s seen the greatest net inflows year-to-date of any ETF, adding more than $30 billion.
The Vanguard Mid-Cap ETF (VO) at #2 is a bit interesting. When people talk stocks, they usually discuss it in terms of large-caps vs. small-caps. Mid-caps usually get left out of the discussion, although they’ve delivered some pretty good risk-adjusted returns in their own right. The fund does have more than $50 billion in assets, a tiny 0.04% expense ratio and has the liquidity and diversification that earns it some bonus points.
If you’re viewing these rankings in terms of value/growth, the Vanguard Growth ETF (VUG) at #7 is the only such fund in the latter category to land in the top 10. That compares to three value ETFs – the Vanguard Value ETF (VTV) at #4, the Vanguard Mega-Cap Value ETF (MGV) at #8 and the Vanguard Mid-Cap Value ETF (VOE) at #10. You’d have to slide all the way down to the Vanguard Mid-Cap Growth ETF (VOT) at #17 to find the next growth-tilted ETF. This isn’t necessarily an indictment of growth ETFs, in general. These ETFs are grouped pretty tightly to begin with and these rankings are based on the numbers, not the style or performance.
Vanguard’s two headline dividend ETFs – the Vanguard High Dividend Yield ETF (VYM) and the Vanguard Dividend Appreciation ETF (VIG) – come in at #6 and #12, respectively. If you check out my dividend ETF rankings, VYM currently lands at #1 and VIG at #3, an indication of how highly rated these funds really are. Their international counterparts – the Vanguard International High Dividend Yield ETF (VYMI) and the Vanguard International Dividend Appreciation ETF (VIGI) – land much lower on this list at #53 and #57, respectively, but they are perhaps the two best international dividend ETFs out there.
Elsewhere on the list, the Vanguard Total World Stock ETF (VT) is ideal for those truly looking for complete global equity exposure. It’s got U.S., developed and emerging markets stocks across large-, mid- and small-caps. The Vanguard Utilities Sector ETF (VPU) is the company’s highest-rated sector ETF, although many of them are bunched together in that same area. Since 8 of the sector ETFs fall within a 9-spot range on these rankings, they’re effectively the same structurally with their targeted sector being the only difference.
Here’s where you start seeing a lot of Vanguard’s other non-U.S. and non-beta offerings. By this, I mean ESG, developed & emerging markets and factor ETFs. Most of these do an effective job at offering exposure to their target markets, but they also come in with slightly higher expense ratios based on how they’re investing. That will ding some of these funds when compared to ETFs charging just 3-4 basis points, but it’s important to remember that most of them rank quite highly when measured against their direct peers. It’s a great example of how Vanguard offers so many great, ultra-low cost ETFs in their lineup.
Vanguard made headlines when it decided to launch the Vanguard ESG U.S. Stock ETF (ESGV) and the Vanguard ESG International Stock ETF (VSGX). To date, they’ve been modest successes by Vanguard’s lofty standards. ESGV ranks a respectable #33, but VSGX comes in at #59 out of 62 ETFs. Both carry the typical low expense ratio and have netted a combined $9 billion, but they’ve been far from runaway successes. Part of that is due to the fact that ESG investing, in general, has generated moderate interest, but hasn’t been the next big thing that many thought it would be. The pair have brought in a net $1.2 billion year-to-date, so they’re still growing, but I have doubts that they’ll ever be a major part of the Vanguard ETF lineup.
Vanguard’s three big international ETFs – the Vanguard Total International Stock ETF (VXUS), the Vanguard FTSE Developed Markets ETF (VEA) and the Vanguard FTSE Emerging Markets ETF (VWO) – all land in the 2nd half of the Vanguard ETF rankings. I don’t view this as a condemnation of these funds, but more one of the inherent weaknesses that comes from grouping ETFs with a number of different target markets into a single bucket. International stock funds almost always come with higher expense ratios than their U.S. counterparts, one of the reasons these funds end up ranking lower, and their tradeability scores tend to be lower as well. In more traditional international equity ETF rankings, I imagine they’d very likely land in the top 10.
I’m just going to take a moment here to discuss Vanguard’s factor ETFs, which I mentioned earlier. The group includes the Vanguard U.S. Value Factor ETF (VFVA), the Vanguard U.S. Momentum Factor ETF (VFMO), the Vanguard U.S. Quality Factor ETF (VFQY), the Vanguard U.S. Minimum Volatility ETF (VFMV), the Vanguard U.S. Liquidity Factor ETF (VFLQ) and the all-encompassing Vanguard U.S. Multifactor ETF (VFMF). VFVA is the highest ranking of this group at #49. The latter trio hold the bottom three spots.
This group has been one of Vanguard’s rare disappointments. These ETFs launched more than 4 years ago when factor and smart beta investing got a little more attention. Even though they were unique compared to the rest of Vanguard’s lineup, they were viewed future winners since, well, almost everything Vanguard touches turns to gold.
Not this time though. After all this time, the group collectively accounts for just $1.4 billion in assets, about half of which is in VFVA. To put that into perspective, VOO trades about $1.7 billion worth of shares every day. I don’t think these are bad funds, more underutilized than anything. Their 0.13% expense ratios are certainly attractive compared to the rest of the marketplace (especially for actively-managed funds). Their strategies make logical sense. I don’t think there’s any reason to avoid them if thematic exposure is what you’re looking for.