Vanguard offers 86 exchange-traded funds (ETFs). With such a large lineup, it might seem there would be a Vanguard ETF for any market condition.
But what if President-elect Trump’s proposed tariffs of up to 20% on all imports and even higher tariffs on Chinese imports are imposed? Many economists think these tariffs could cause inflation to jump again. Multiple studies of Trump’s proposals predict a negative impact on the U.S. economy.
Does Vanguard have any ETFs suitable for such an environment if these projections are right? I think so. These three Vanguard ETFs could be smart picks if Trump gets his way on tariffs.
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1. Vanguard Consumer Staples ETF
The Vanguard Consumer Staples ETF (VDC 1.08%) owns 104 consumer staples stocks, all based in the U.S. Its top holdings include Procter & Gamble, Costco Wholesale, Walmart, Coca-Cola, and Philip Morris. These five stocks combined make up nearly half of the ETF’s total portfolio.
Arguably, the most important reason this Vanguard ETF would likely hold up well if high tariffs are imposed is that the businesses it owns primarily sell essential goods. The demand for food, beverages, household products, personal care products, and tobacco products should remain solid, even if tariffs contribute to economic uncertainty in the U.S.
Granted, some companies in the Vanguard Consumer Staples ETF’s portfolio have significant international exposure. This fund could fall if tariffs lead to trade wars with other countries.
However, consumer staples is a defensive sector that often performs better than most sectors during turbulent periods. Companies in the sector should be in a stronger position to pass along price increases to customers without affecting sales too much.
2. Vanguard Financials ETF
The Vanguard Financials ETF (VFH 1.25%) owns 404 U.S.-based financial services stocks. Its top holdings include JPMorgan Chase, Berkshire Hathaway, Mastercard, Visa, and Bank of America. These five stocks together comprise roughly 30% of the ETF’s portfolio.
Why might this Vanguard ETF perform relatively well if Trump’s proposed tariffs become effective? For one thing, the banks in the ETF’s portfolio could benefit from higher interest income if tariffs spur the Federal Reserve to raise interest rates. Insurance stocks owned by the ETF should be largely immune to the effects of tariffs.
Though some of the Vanguard Financials ETF’s holdings could be negatively impacted by tariffs. For example, Mastercard and Visa could suffer if tariffs cause cross-border transaction volumes to decline. Should tariffs lead to higher interest rates, mortgage real estate investment trusts (REITs) would likely incur higher costs to fund growth.
Another Trump proposal could also boost this Vanguard ETF. The president-elect wants to reduce regulations. Large financial services companies would probably especially benefit from deregulation.
3. Vanguard S&P Small-Cap 600 ETF
The Vanguard S&P Small-Cap 600 ETF (VIOO 1.59%) is another ETF that could be in relatively good shape in a high-tariff environment. This fund owns 604 stocks in the S&P Small-Cap 600 Index, which focuses on smaller U.S. companies. It’s highly diversified, with no single stock making up more than 0.7% of the total portfolio.
Smaller companies tend to focus more on the domestic market, with less exposure to global markets. This largely insulates many of them from the negative impact of tariffs. Some could even be helped by tariffs if they can capture market share from international competitors.
That said, some of the Vanguard S&P Small-Cap 600 ETF’s holdings have extensive international operations and could be hurt by tariffs. For example, Mueller Industries, the ETF’s top holding, manufactures products that include piping, industrial metals, and climate system components. Roughly one-fourth of the company’s revenue stems from outside the U.S.
However, many of the small companies in the Vanguard S&P Small-Cap 600 ETF are more heavily (if not exclusively) focused on the U.S. market. Overall, this Vanguard ETF seems likely to perform better than most if Trump’s tariffs are imposed.
Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Keith Speights has positions in Berkshire Hathaway and Mastercard. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Mastercard, Visa, and Walmart. The Motley Fool recommends Philip Morris International and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.