Sector Investing Perspective on Vanguard Sector ETFs
Vanguard Sector ETFs are administered by The Vanguard Group, a leading mutual fund company that manages several index mutual funds. Vanguard sector ETFs are set up as a separate class of shares of selected Vanguard index funds.
Vanguard index funds that offer ETF shares have two classes of shares. The first class of shares is called Admiral Shares. The Admiral Shares are conventional mutual fund shares that can be bought from or redeemed with the issuing index fund. The ETF shares are the other class of shares and they trade on the American Stock Exchange.
Breadth of Vanguard Sector ETFs
Vanguard offers ten sector ETFs and one industry group ETF. The sector ETFs span the ten sectors of the Global Industry Classification Standard jointly developed by Morgan Stanley Capital International (MSCI) and Standard & Poor’s. The sole industry group ETF focuses on real-estate investment trusts (REITs).
Investment Approach of Vanguard Sector ETFs
The Vanguard ETFs as well as sector and industry group index funds are designed to track a target index. The target index is the MSCI US Investable Market Index for the corresponding sector or industry group. The MSCI sector indexes are subsets of the MSCI US Investable Market 2500 Index. The MSCI US REIT Index is the target index for the Vanguard REIT Index Fund.
Expense Ratio of Vanguard Sector ETFs
The expense ratio for all Vanguard sector ETFs except the Vanguard REIT ETF is 0.10%. The expense ratio for the Vanguard REIT ETF is 0.12%.
Trading Vanguard Sector ETFs
Vanguard Sector ETFs may be purchased in ’round lots’ of 100 shares or smaller with the minimum number being one share. Subject to certain restrictions, Vanguard allows existing Admiral Class shareholders to convert their shares into shares of the corresponding ETF.
AlphaProfit Take on Vanguard Sector ETFs
Vanguard ETFs are based on benchmark indexes provided by MSCI. The MSCI indexes are reconstituted quarterly and reflect changes in equity markets in a relatively timely manner. The MSCI sector indices tend to be more broadly diversified. As such, Vanguard sector ETFs generally include a greater number of stocks and cover more market capitalization segments than sector ETFs offered by other ETF families.
The expense ratios of Vanguard ETFs are generally lower than those of most competing ETFs. The expense ratios of Vanguard ETFs are also generally a tad lower than those of the Admiral Shares offered by the corresponding Vanguard index fund.
The liquidity of Vanguard ETFs has generally been lower than those of SPDR ETFs. This in turn may translate into higher bid-ask spreads.
Since Vanguard ETFs are set up as a class of index fund shares, significant net redemptions of the Admiral Class mutual fund shares may adversely affect the tax efficiency of the ETF shares.
With just one industry group offering, Vanguard ETFs offer slim pickings for investors seeking industry group ETFs.
For most retail investors, Vanguard ETFs offer a less-onerous means to own shares in Vanguard sector index funds. ETF investors do not have to come up with the relatively large minimum initial investment required to own Admiral Shares. Unlike Admiral Share investors, ETF investors are not required to hold their shares for one year to avoid the short-term redemption fee.
Vanguard Sector ETF Recommendations
AlphaProfit Sector Investors’ Newsletter is the premier resource for sector investors. The Newsletter offers recommendations on Vanguard sector ETFs. The Newsletter and its model portfolios have frequently been ranked #1 by Hulbert Financial Digest.
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List of Vanguard Sector ETFs
|Vanguard ETF||Symbol||Inception Date||Vanguard Index Fund Offering ETF, Admiral Shares Ticker||Underlying MSCI-US-IM Index||Focus Area of ETF|
|Vanguard Consumer Discretionary ETF||VCR||01/26/2004||Vanguard Consumer Discretionary Index Fund, VCDAX||Consumer Discretionary||Media, Entertainment, Home Improvement Retail, Restaurants|
|Vanguard Consumer Staples ETF||VDC||01/26/2004||Vanguard Consumer Staples Index Fund, VCSAX||Consumer Staples||Food Products, Beverages, Tobacco, Household Products|
|Vanguard Energy ETF||VDE||09/23/2004||Vanguard Energy Index Fund, VENAX||Energy||IntegratedOil, Oil & Gas Exploration & Production, Energy Service|
|Vanguard Financials ETF||VFH||01/26/2004||Vanguard Financials Index Fund, VFAIX||Financials||Diversified Banks, Property & Casualty Insurance, Regional Banks, REITs|
|Vanguard Health Care ETF||VHT||01/26/2004||Vanguard Health Care Index Fund, VHCIX||Health Care||Pharmaceuticals, Biotechnology, Health Care Equipment|
|Vanguard Industrials ETF||VIS||09/23/2004||Vanguard Industrials Index Fund, VINAX||Industrials||Industrial Conglomerates, Aerospace & Defense, Heavy Equipment & Machinery|
|Vanguard Information Technology ETF||VGT||01/26/2004||Vanguard Information Technology Index Fund, VITAX||Information Technology||Computer Hardware, Communication Equipment, Semiconductors, Software|
|Vanguard Materials ETF||VAW||01/26/2004||Vanguard Materials Index Fund, VMIAX||Materials||Diversified Chemicals, Steel, Specialty Chemicals|
|Vanguard REIT ETF||VNQ||09/23/2004||Vanguard REIT Index Fund, VGSLX||REIT||Retail REITs, Specialized REITs, Residential REITs, Office REITs|
|Vanguard Telecom. Services ETF||VOX||09/23/2004||Vanguard Telecommunication Services Index Fund, VTCAX||Telecom. Services||Integrated Telecommunication Services, Wireless Telecommunication Services|
|Vanguard Utilities ETF||VPU||01/26/2004||Vanguard Utilities Index Fund, VUIAX||Utilities||Electric Utilities, Multiutilities, Independent Power Producers, Gas Utilities|