Thanks to this ownership structure, The Vanguard Group is able to align its interests with those of its clients. Vanguard claims to consistently put its clients’ interests first, and from design to implementation, everything that it does aims to give traders the best chance for investment success.
- What is an ETF?
- How do ETFs compare to mutual funds?
- Why choose Vanguard ETFs?
- What ETFs are offered by Vanguard?
What is an ETF? Why are ETFs a good choice?
An ETF is an exchange-traded fund that is traded on a major stock exchange. It contains a collection of stocks or bonds in a single fund. It may combine anywhere from ten to thousands of individual stocks and bonds. An ETF can increase the convenience and ease of investing as it contains a preselected collection of stocks or bonds.
Buying and selling an ETF is similar to trading an individual stock as they are traded the same way. However, ETFs are also similar to mutual funds as they share the same low costs and inherent diversification. Purchasing an ETF instead of individual stocks or bonds provides protection against the poor performance of a single stock or bond. If a single stock is performing poorly, in all likelihood, there is another stock in your ETF that is performing exceptionally well. This helps to minimise any losses.
By purchasing an ETF, you are taking advantage of the skills of a professional fund manager and can save yourself time and effort as the analysis is performed for you. Prior to purchasing an ETF, you should familiarise yourself with the ETF’s objective, whether it be income or growth. However, with ETFs, you are certainly not required to keep track of every detail related to the individual stocks or bonds included within it.
With a Vanguard ETF, you can buy or sell ETFs within your Vanguard Brokerage Account without ever paying a commission.
How do ETFs compare to mutual funds?
While mutual funds and ETFs are similar in many ways, there are also some characteristics of ETFs that make them preferable to some traders:
- ETFs can be traded at any time of day, whereas mutual funds can typically be traded only once at the end of the trading day
- The cost of investing in ETFs is typically about 75% less than investing in mutual funds
- Less money is typically required to start investing
- Every time you buy and sell, real-time pricing is available
- While mutual funds report to investors only four times a year, ETFs report daily
ETFs and mutual funds actually have more in common than they do differences. The main similarity between the two is that they are both professionally managed collections of stocks and bonds. They also share the following characteristics:
- Less risk involved than investing in separate stocks and bonds
- Overseen by professional portfolio managers
- A wide selection of investment options available with both
It should also be noted that ETFs and mutual funds are commission-free with Vanguard.
The majority of ETFs are index funds, which are also sometimes referred to as passive investments. ETFs also provide greater control over the price you pay, as they offer real-time pricing and support for more complex order types. Mutual funds dictate that everyone who sells or purchases the fund on a given day will pay the same price, and this price is not calculated until the trading day ends.
Why choose Vanguard UK ETFs? What do they offer?
When you purchase a Vanguard ETF, you can be assured that the company will attempt to secure you the lowest possible price when you buy and the highest possible price when you decide to sell. This commitment is known as Vanguard’s best-execution commitment. Vanguard ETFs are touted as being high-quality while providing competitive long-term returns.
Vanguard claims to have executed 97% of all Vanguard ETF shares traded through a Vanguard Brokerage Account at a better price than was quoted in 2017. Additionally, Vanguard reports that 92% of its ETFs have had better returns than its peer-group averages over the past decade.
ETFs are ideal for buy-and-hold investors who wish to minimise annual charges, but they can also be useful for investors who are looking to rebalance or restructure their portfolio. They allow for easy diversification, and no commissions are charged on ETFs at Vanguard. Vanguard UK ETFs also offer the advantage of lower taxes, with Vanguard claiming for the past five years that 85% of its ETFs have had no taxable capital gains distributions.
While you should always perform a broker comparison prior to settling on a broker to use, if you are looking to invest in ETFs, Vanguard has plenty to recommend itself.
What ETFs are available from Vanguard?
With an average ETF expense ratio of 74% less than the industry average, Vanguard provides low-cost access to global investment markets with both active and passive strategies. While most ETFs offered by Vanguard make use of passive strategies, the following four ETFs are actively managed:
- Vanguard Global Minimum Volatility UCITS ETF – this ETF focuses on a combination of stocks and bonds that have a lower volatility than those in the market as a whole.
- Vanguard Global Momentum UCITS ETF – the focus for this Vanguard ETF is to target premiums that are associated with stocks with strong recent share price performance.
- Vanguard Global Value UCITS ETF – this fund focuses on shares that appear to be inexpensive compared to the company’s fundamentals. It targets premiums associated with low-value equities.
- Vanguard Global Liquidity UCITS ETF – this fund targets the premiums associated with a range of less frequently traded equities.
As active ETFs, these are all factor-based quantitative funds. The primary factors used to determine inclusion or exclusion in these funds are value, momentum and size. Vanguard uses quantitative models to select stocks that are appropriate to the purpose of a fund.
The remainder of funds available for purchase from Vanguard are indexed funds, with a passive approach to management. These include:
- DAX UCITS ETF (EUR) Distributing – DAX index
- FTSE 100 UCITS ETF (GBP) Distributing – FTSE 100 index
- EUR Corporate Bond UCITS ETF (EUR) Distributing – Bloomberg Barclays Euro Aggregate: Corporates index
Many more indexed ETFs are available.
How much does it cost to start investing in ETFs?
You can get started investing in ETFs for as little as the price of one share – also referred to as the ETF’s market price. This price can vary, depending on the ETF, from as little as £40 to a few hundred pounds. For comparison purposes, investing in a mutual fund requires a flat dollar amount. With Vanguard, most mutual funds require an initial investment exceeding £2,300.
Automatic investments or withdrawals are not possible with ETFs.
For beginner investors, or those looking to regularly invest small amounts, Vanguard ETFs can be a good solution. As Vanguard focuses on putting the client’s interests first, investors can be more confident that the funds that they invest will actually be invested rather than slowly leaking away due to constant fees and charges. Due to the unique ownership structure of Vanguard, there is no concern that the company will ever be acquired. This company will be around for the long haul.
Vanguard offers over 50 ETFs covering a broad range of indexes. Due to the fact that ETFs are traded like stocks, those interested in more advanced trading strategies can also take advantage of options, short selling and stop-loss orders. If you are experienced in making use of these strategies, it is possible that you can further increase the profits associated with your investment. Those lacking in this experience may do well to simply treat their investment in an ETF as long term.
High-performing Vanguard ETFs
Some of Vanguard’s ETFs come highly recommended. The following three funds are some of these high performers:
Vanguard Total Stock Market ETF – VTI
This particular fund is intended for investors seeking the broadest exposure to the US stock market. A simple way to diversify, this fund tracks the performance of the CRSP US Total Market Index, which is a benchmark measuring the investment return of the US stock market as a whole. The fund includes in excess of £73.65bn in assets and was launched in 2001. It includes a wide range of stocks regularly traded on the NYSE and Nasdaq.
Vanguard S&P 500 ETF – VOO
Launched in 2010, the Vanguard S&P 500 ETF (VOO) tracks the top S&P 500-tracking ETFs. It offers large-cap exposure and reinvests its interim cash. It has in excess of £70.76bn in total assets and an average daily volume of £1.73 million.
Vanguard REIT ETF – VNQ
Introduced in 2004, the Vanguard REIT ETF (VNQ) has over £23.27bn in total assets and is the largest fund in the sector. This fund includes a large selection of US-focused REITs, with broad, diversified exposure. Income is the fund’s primary goal, but it does show some appreciation in value. This fund tracks the MSCI US REIT Index, and the specific stocks included in the fund are part of the index. The index covers about two-thirds of the value of the entire US REIT market.
ETF tools – when you need help to balance your portfolio
While this Vanguard ETF guide has outlined various advantages of investing in ETFs with Vanguard, it can be confusing choosing a specific ETF to invest in. Thankfully, there are a number of tools available to help you figure out which ETFs are the best fit for your portfolio. The majority of the below tools are free to use but may offer upgrades for additional features.
Reuters ETF Screener – permits screening for many different criteria, including fund attributes, return, expense ratio, Lipper rankings and net assets, and can be further filtered by risk measures, price performance and total return performance.
Asset Correlation – allows you to gauge the risk of each asset.
ETFdb.com Country Exposure Tool – allows you to select the country that you wish to invest in and specifies which ETFs provide a given percentage of exposure to that country.
ETF Screener.com – a thorough and detailed screener that can screen for the typical criteria as well as relative strength factor and your own criteria.
ETF Replay – offers a chart comparison tool to compare the performance of five ETFs.
Morningstar – requires that you sign up for a free account but allows you to search and sort by a broad selection of metrics.
Vanguard mutual funds and ETFs are both highly applauded as being some of the most cost-effective means of investing in the field today. Thanks to its unique ownership structure, Vanguard’s focus truly is on seeing its customers succeed. Without any owners to satisfy, apart from its own customers, Vanguard is in a unique position to truly put its clients’ interests first. A review of client comments reveals high levels of satisfaction with Vanguard as a whole.
With some of the most successful ETFs available, Vanguard also holds the unique honour of being the first brokerage to introduce passively managed funds that are based on indexes. Vanguard has continued to build on this basis to save clients the cost of fees and provide better performance than many of its competitors. Vanguard has a wide array of ETFs to choose from, and you should easily be able to find one that fits the goals of your portfolio.
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