Two Vanguard Funds Prepared for considerable Profit Growth
Diving into the world of investments, especially with the surge of exchange-traded funds (ETFs) over the last three decades, has made investing straightforward. ETFs offer a hassle-free approach to diversification across various sectors or zeroing in on specific investment themes.
However, it's crucial to consider the cost associated with these funds, as they vary significantly. The typical expense ratio for ETFs hovers around 0.52%, meaning investors pay $52 annually for every $10,000 invested. In contrast, Vanguard ETFs often offer expense ratios 83% lower, making them an attractive choice for cost-aware investors.
Let's delve into two growth-focused Vanguard ETFs that show promise to surpass the S&P 500 over the next five years.
An alluring value opportunity
Despite its "small-cap" label, the Vanguard Small-Cap Value Index Fund (VBR -0.45%) focuses on medium-sized companies with a median market cap of $7.5 billion that seem undervalued. The fund aims to mimic the performance of the CRSP U.S. Small-Cap Value index and boasts a minuscule expense ratio of merely 0.07%.
Over the previous decade, the Vanguard Small-Cap Value Index Fund delivered an annualized return of 8.94%. Currently, the fund incorporates shares in 835 companies across all sectors of the global economy. Key holdings include the likes of Smurfit WestRock plc, a leader in sustainable packaging, Builders FirstSource Inc., a major supplier of building materials, and Booz Allen Hamilton, a renowned consulting firm in technology and analytics.
Although the Vanguard Small-Cap Value Index Fund has reported decent performance in 2024, it hasn't matched the blazing S&P 500, primarily due to the outstanding performance of large-cap technology and biopharmaceutical stocks. However, as the Federal Reserve proceeds with its planned rate cuts, the atmosphere may become more suitable to smaller, growth-oriented companies.
Lower interest rates can lead to cheaper borrowing costs for businesses, spurring investment and expansion. Moreover, lower rates can stimulate consumer spending, aiding smaller companies that rely on domestic consumption for their products and services.
In addition, the yearly earnings growth rate for the companies within the Vanguard Small-Cap Value Index Fund stands at an impressive 12.9% over the last five years, highlighting their robust earnings power.
Furthermore, the fund's holdings boast an average price-to-earnings (P/E) ratio of just 16.1, which is substantially lower than the S&P 500's average P/E ratio of nearly 27.3. This fact indicates that these smaller companies may be undervalued, and their stock prices could escalate as investors recognize their growth potential.
Overall, the Vanguard Small-Cap Value Index Fund offers access to a diverse assortment of undervalued growth opportunities at a remarkably low cost, making it an enticing choice for long-term investors.
This large-cap growth ETF is a tested asset
The Vanguard Growth Index Fund (VUG 0.17%) targets colossal companies with a median market cap of $1.4 trillion that exhibit above-average growth potential. Designed to emulate the performance of the CRSP U.S. Large Cap Growth index, this fund presents a competitive expense ratio of 0.04% and hasY delivered a staggering 10-year annualized return of 15.1%.
The Vanguard Growth Index Fund currently incorporates shares in 183 companies, with many prominent names in the technology sector. Key holdings include tech heavyweights such as Apple, Microsoft, and Nvidia.
The Vanguard Growth Index Fund's tech-leaning nature has allowed it to barely edge out the broader S&P 500 index this year. However, this trend of outperformance is not novel.
Over the preceding decade, the Vanguard Growth Index Fund has garnered total returns of 319%, assuming the reinvestment of distributions in a tax-advantaged account. Compared to the S&P 500 which returned 243% during the same period, this fund's remarkable growth profile is abundantly clear.
Although the Vanguard Growth Index Fund carries the common risks of growth investing, it has consistently proven itself as a potent performer in both bull and bear markets.
The fund's emphasis on high-growth companies makes it an appealing choice for risk-tolerant investors seeking outsized returns. And its ultra-low expense ratio adds to its allure, allowing investors to preserve a more substantial share of their returns over time.
Why these two Vanguard ETFs could bring above-average market returns
Both the Vanguard Small-Cap Value Index Fund and the Vanguard Growth Index Fund present intriguing opportunities for investors aiming to strengthen their growth portfolios. These two Vanguard ETFs not only offer low costs but also possess a strong potential for substantial long-term growth.
The Vanguard Small-Cap Value Index Fund stands to benefit from a favorable economic climate as interest rates plummet, potentially stimulating consumer spending and investment in smaller companies. With a lower average price-to-earnings ratio, compared to the S&P 500, these undervalued stocks have significant room for upward momentum as the market recognizes their growth potential.
On the other hand, the Vanguard Growth Index Fund zeroes in on big-cap companies with ceaseless growth prospects, particularly in the technology sector. As innovation continues to drive economic growth, these companies are likely to outperform the broader market. The fund's proven track record of returns further reinforces its potential to surpass the S&P 500's performance over the next five years.
In the context of considering the cost of various ETFs, it's worth noting that the typical expense ratio for ETFs is around 0.52%, but Vanguard ETFs often offer expense ratios 83% lower, making them a more cost-effective choice for investors.
Furthermore, when contemplating potential growth-focused ETFs that could surpass the S&P 500 over the next five years, the Vanguard Small-Cap Value Index Fund and the Vanguard Growth Index Fund emerge as promising options, given their low costs and strong growth potential.
