Large-cap growth stocks began to retreat in the second half of the year, weighed down by expected interest rate cuts and valuation concerns. Investors should pay close attention to these potential rate cuts, as they often benefit small- and mid-cap stocks more than their large-cap counterparts, given the former’s greater reliance on financing to drive growth.
This market environment sets the stage for three Vanguard exchange traded funds (ETFs) will potentially outperform in the second half of the year. These three funds are expected to benefit from a market-wide shift towards smaller, growth-oriented companies and those offering attractive valuations. Armed with this background, let’s explore these three Vanguard stock ETFs in detail.
Vanguard Small-Cap Value Index Fund ETF Shares
O Vanguard Small-Cap Value Index Fund ETF Shares (NYSEMKT:VBR) tracks the CRSP US Small Cap Value Index. There’s a SEC Income of 2.1% and an expense ratio of 0.07%.
The five largest ETF holdings consist of management consultancy Booz Allen Hamilton Holdingbuilding materials manufacturer Carlisle Cos.financial service provider BancShares First Citizensconstruction and installation services company EMCOR Groupand construction products supplier Builders First Source.
At recent prices, shares of the Vanguard Small-Cap Value Index Fund ETF have gained 10.8% year-to-date, with most of those gains coming in the month of July. This recent rally is not surprising given that small-cap value stocks often perform well when interest rates fall.
What’s the main appeal? This Vanguard ETF provides exposure to smaller companies with value characteristics, which could prove beneficial if the market leans toward undervalued growth stocks in the second half of the year.
Vanguard Mid-Cap Index Fund ETF Shares
O 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 manufacturers Amphenolaerospace systems supplier TransDigm Groupcommunications technology company Motorola Solutionsenergy producer Constellation Energyand healthcare real estate investment fund Well Tower.
Vanguard Mid-Cap Index Fund ETF shares have gained 8.41% year-to-date. Mid-cap stocks offer a balance between the stability of large caps and the growth potential of small caps. This ETF thus provides exposure to mid-sized companies that may benefit from changes in interest rates, while also offering a greater margin of safety than its small-cap counterpart discussed below.
Vanguard Small-Cap Index Fund ETF Shares
O 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 holdings consist of midstream energy infrastructure operator TArga Resourcesshoe and clothing manufacturer Outdoor Deckerslaw enforcement technology provider Axon Enterpriseindustrial software developer PTCand supplier of semiconductor materials Entégris.
Shares of the Vanguard Small-Cap Index Fund ETF have jumped 9.45% year to date. Small-cap stocks tend to be more volatile but offer greater growth potential than mid- or large-cap stocks, especially during economic changes. 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 offer focused exposure to market segments that could outperform in the coming year. More specifically, expected interest rate cuts later this year could create a favorable climate for small and mid-cap stocks.
Lower-growth companies could also benefit from a broader market shift toward value. Speaking of this point, tech giants like Nvidia have seen notably high valuations this year, driven by the artificial intelligence (AI) gold rush. This trend could reverse as AI investors begin to take profits and diversify into a broader range of growth stocks.
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George Budwell has positions in the Vanguard Small-Cap Value ETF. The Motley Fool 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 Fool recommends Booz Allen Hamilton, PTC, Targa Resources and TransDigm Group. The motley fool has a disclosure policy.
3 Best Vanguard Stock ETFs to Buy in August was originally published by The Motley Fool
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