3 Vanguard ETFs That Should Bring Investors in 2021

As the stock market is now close to its all-time highs, it may seem like there is no buying opportunity. But good investors can find an opportunity in all market conditions.

Currently, investing in exchange-traded funds (ETFs) that track a specific specialized segment of the stock market, ready to take off, is a good move. Thus, you will not need to worry about manual selection of individual stocks. You immediately get a well-diversified basket of securities that track a specific underlying index.

The only thing that may be required of you for this is to analyze economic trends in order to identify (forecast) the leading industries in the relatively near future. Although this is not necessary at all, because below I will tell you about three exchange-traded funds managed by The Vanguard Group investing in industries that are expected to rise in the relatively short term.

ETF Relative Return Charts
These Three Funds Can Become Cash Cows For Your Investment Portfolio

ETF Vanguard Financials (VFH)

A year ago, the picture for companies operating in the financial industry was rather bleak. The Fed cut interest rates to near zero, which led to lower lending rates, which in turn meant lower lending margins. At the same time, job cuts have forced banks to tighten lending standards and accumulate cash in anticipation of massive defaults.

But after a challenging 2020, the financial sector began to gain momentum sharply in 2021. This is why investors should turn their attention to the Vanguard Financials ETF. This fund has grown more than 28% since the beginning of the year, more than doubling the S&P 500 (the S&P 500 has gained about 11% over the same period).

The largest holdings in the Vanguard Financials ETF
Top 10 holdings in the Vanguard Financials ETF

The fund is widely diversified throughout the financial sector and has 408 stocks in its portfolio, most of which are banks. Among its largest holdings are world-renowned companies such as JPMorgan Chase, Berkshire Hathaway and Bank of America.

Vanguard Financials ETF Diversification
Diversification by financial sector (versus benchmark)

Investing in Vanguard Financials ETFs can benefit from the ongoing economic recovery as the financial sector tends to be cyclical. Moreover, the default rate turned out to be much lower than expected, so banks are sitting on a large amount of cash. The US financial sector also received a vote of confidence from the Fed, which will lift restrictions on share buybacks and dividend payments for those companies that pass the next round of stress tests.

The Vanguard Financials ETF is a good way to invest in a sector that is likely to continue to grow as the economy recovers. The fund has ultra-low commissions of 0.1% (this means only $ 1 overhead out of $ 1,000 investment).

Investment growth over 10 years
Investment growth of $ 10,000 in 10 years

Vanguard Real Estate ETF (VNQ)

Like the financial sector, the commercial real estate sector had a dismal 2020. But as the quarantine restrictions are lifted, commercial real estate will gradually regain its position. The Vanguard Real Estate ETF provides investors with the opportunity to invest in real estate by purchasing multiple shares of the fund.

Real Estate ETFs invest in real estate investment funds (REITs), which are similar to mutual funds, with the only difference that they invest in real estate and not in stocks. He has 174 REITs in his portfolio, and his commission is only 0.12%.

Diversification of the fund by industry
Diversification by industry

The fund is related to some of the commercial real estate segments most affected by the pandemic, such as:

  1. Retail facilities (10%);
  2. Office buildings (7.5%);
  3. Hotels and resorts (3.4%).

But many of his largest holdings were relatively isolated. For example, its 10 largest REITs specialize in real estate such as:

  • Cell towers;
  • Data processing centers (DPC);
  • Warehouses.
Top 10 Vanguard Real Estate ETF Holdings
Ten largest holdings in the fund

In 2021, the fund surpassed the S&P 500 in terms of profitability, its shares rose by almost 15% (the S&P is up 11%). However, while the S&P 500 is up about 23% from its pre-pandemic highs (reached in February 2020), the Vanguard Real Estate ETF has not yet surpassed them (its price is now about 2% lower), so that he still has a certain margin of growth.

One of the unique things about REITs is that they are reliable sources of dividend income. After all, they are legally required to pay 90% of their taxable income as dividends to shareholders. The Vanguard Real Estate ETF with an annual return of 3.24% provides a good opportunity for people looking for a stable investment income.

Investment growth of $ 10,000 in 10 years

Vanguard Health Care ETF (VHT)

Finally, another promising sector that investors should consider in 2021 is healthcare. The Vanguard Health Care ETF invests in an index of 445 US healthcare stocks.

Diversification of the Vanguard Health Care ETF

The largest shares in the fund are in the following areas of the industry:

  • Medical equipment (23.1%);
  • Pharmaceuticals (23.9%);
  • Biotechnology (18.8%).

The largest holdings in the fund are Johnson & Johnson, UnitedHealth Group and Pfizer.

Largest Vanguard health care ETFs
TOP-10 companies in the fund

Today (since the beginning of 2021), the fund is inferior to the S&P 500 index, the price of its shares has risen by a little more than 6.5% (against 11% growth of the S&P). Looking ahead, however, there are many reasons for the growth of the entire health sector:

  • An aging population will need more medical care;
  • The demand for routine procedures that people are postponing due to the pandemic is likely to increase.

The commission charged by this fund is also relatively low – only 0.1%.

Vanguard Health Care ETF Return Chart
Fund performance over ten years

PS: So, we looked at three promising ETFs investing in three industries that are expected to rise in 2021. In my opinion, at this point in time, you can successfully invest in each of them. Moreover, for greater diversification, it is not at all necessary to dwell on one or the other.

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