Key Points
Vanguard has become synonymous with indexing, low expense ratios, and exchange-traded funds (ETFs). It is the largest provider of ETFs in the U.S., recently overtaking iShares in U.S.-based ETF assets. Five of the 10 largest ETFs by assets are managed by Vanguard, led by the first trillion-dollar fund, the Vanguard S&P 500 ETF.
You may have one or more Vanguard ETFs in your portfolio right now. One you should consider, if you don’t own it already, is often overlooked: the Vanguard U.S. Multifactor ETF (NYSEMKT: VFMF).
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It has not only been one of the top-performing Vanguard ETFs this year but also one of the brand’s top performers over the past five years. And it is in a particularly good position to outperform in the years ahead.
The best-performing broad market Vanguard ETF
The Vanguard U.S. Multifactor ETF employs a quantitative strategy that begins by screening out stocks deemed volatile. From that universe, the all-cap ETF looks at three different factors: momentum stocks with strong recent performance, quality stocks with strong fundamentals, and value stocks. That results in a broadly diversified, equally weighted portfolio that spans cap sizes, sectors, and industries.
Currently, there are 650 stocks in the portfolio, with the three largest holdings, slightly higher because of performance, being Micron Technology, Dell Technologies, and Valero Energy.
Its performance has been strong, as the ETF is up about 22% year to date, making it the fourth-best-performing Vanguard ETF. Over the past year, it has returned about 28%, which would be the fifth-best in the Vanguard fund family.
It has also been a strong long-term performer, with a five-year average annualized return of 14.3%, the third-best Vanguard ETF behind Vanguard Energy and Vanguard Information Technology — two sector funds. So, you could argue that the Vanguard U.S. Multifactor ETF has been the best-performing broad market Vanguard ETF over the past five years. It doesn’t yet have a 10-year track record, having launched in 2018.
I believe this might be the best Vanguard ETF to own, given where the market is now and where it is likely headed. Not only does it have the track record, as noted, but it is also well-constructed to navigate the uncertain and likely choppy markets coming in the quarters and years ahead. With large-cap valuations near all-time highs and rates rising, volatility is expected, perhaps even a correction.
This ETF, with about $976 million in assets, focuses on cheap stocks with momentum from quality companies. That makes it the perfect antidote for uncertain, overvalued, speculative, and hot-and-cold markets.
Should you buy stock in Vanguard Wellington Fund – Vanguard U.s. Multifactor ETF right now?
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Dave Kovaleski has positions in Micron Technology. The Motley Fool has positions in and recommends Micron Technology and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
