Eric Dutram: The global economy is burdened with uncertainty at this time thanks to the ongoing debt crisis in Europe and low levels of GDP growth and high unemployment in the US.
However, while markets might be shaky in the intermediate term, those in it for the long haul could see some decent values in the marketplace at this time. This is especially true for those willing to sacrifice a little short term pain for gains years in the future.
While you can do this with individual securities, there are a number of ETFs which could be a better choice. These funds offer exposure to a wide variety of stocks which are suitable for long-term investing.
In particular, a look at some of Vanguard’s products could be the ideal way to go. These securities generally have the lowest expense ratios on the market and can be a great way to gain broad exposure to market segments with the least cost possible. In particular, we like the following four Vanguard ETFs for long-term focused investors at this time:
Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO)
As domestic markets and European economies continue to sputter, growth in equities becomes harder to come by. In this light, a look at the quickly growing emerging markets could be ideal for some investors who have a higher risk tolerance at this time. These nations not only have greater growth potential but also lesser correlation with their developed market counterparts (Three Overlooked Emerging Market ETFs)
Investors who are willing to take higher risks in the hope of achieving greater growth rates can invest in Vanguard MSCI Emerging Markets ETF.
This fund tracks the MSCI Emerging Markets Index in order to give investors exposure to a basket of stocks across various developing nations. The product has proven to be extremely popular with investors as $67.7 billion is under management in the fund while trading volume is close to 18.5 million shares per day. Also, the cost appears to be minimal at 20 basis points.
In terms of a portfolio, VWO provides access to 903 securities in its basket and doesn’t allocate more than 3.8% to any one stock in particular. This suggests that the product is well diversified from an individual security perspective and is unlikely to face company specific risk (read Three Emerging Market ETFs to Limit BRIC Exposure).
With regard to country exposure, China takes the top spot at 17.5% of assets, followed by 16.1% in Brazil, 14.4% in Korea, and a 10.7% allocation to Taiwan.
Vanguard Small-Cap ETF (NYSEARCA:VB)
When constructing a portfolio, investors should consider the small-cap segment as an equity component. In recent years, the small-cap segment has seen a ramp up in demand attributable to its promising long-term growth potential.
This slice of the market has the capability to improve the risk adjusted returns of the portfolio and reward investors with steady gains in the long term. The risky attribute of the asset class warrants unparalleled returns in comparison to its large-cap counterparts.
However, one trait that goes against it is the volatility. Small-cap stocks are more volatile in nature than the blue chip counterparts.
Investors seeking to play in this corner of the market can invest in Vanguard Small-Cap ETF. This ETF provides exposure to a diversified group of 1,735 small-cap stocks at a minimal cost of 16 basis points. In terms of liquidity, the fund occupies the third position in the small-cap ETF space.
VB is well diversified both in individual holdings as well as sector holdings. Just 2.8% of its asset base of $26.2 billion is invested in the top 10 holdings. Foot Locker, Inc. (NYSE:FL) and Taubman Centers Inc. (NYSE:TCO) occupy top spots in the large basket of stocks.
In terms of sector exposure, the fund allocates 21.6% of the asset base to Financials while Industrials and Information Technology have a share of 17.1% and 16.3%, respectively. Over a period of one year, the fund delivered a return of 1.03%.
Vanguard Dividend Appreciation ETF (NYSEARCA:VIG)
Attributable to risks in the market and extreme stock volatility over the past few years, many investors sought out more stability in their portfolios along with high levels of current income. Unfortunately, bond yields were quite low pushing many into high dividend paying stocks instead. (Ten Biggest U.S. Equity Market ETFs)
Beyond individual securities, investments in equity ETFs which have stocks that pay high dividend yields emerged as a source of decent income for investors at this time. This has proven to be a pretty good strategy as intermediate term bonds are still yielding below broad stock markets and while broad equities remain under pressure (Emerging Markets Dividend ETFs for Income, Growth & Diversification).
For a dividend-focused approach for the long-term investor in the ETF space, a closer look at VIG could be warranted. The fund tracks the Dividend Achievers Select Index which looks to focus on U.S. common stocks that have a history of increasing dividends for at least ten consecutive years.
This produces a fund that pays out a solid dividend yield of roughly 2.18% a year, a good level considering the focus of the fund. Investors should also note that over $13.5 billion is under management in the fund and that both expenses are reasonable (0.18%) and volume is high (671,100 shares per day).
The product holds a basket of 134 dividend paying stocks. The large cap constituents of the top 10 holdings have a share of 38.6% in net asset. Among these, International Business Machines (NYSE:IBM), The Coca-Cola Company (NYSE:KO) and Procter & Gamble Co. (NYSE:PG) take the top three spots.
In terms of sectors, this dividend ETF is tilted towards Consumer staples (23.4%), Industrials (22.4%), and Consumer Discretionary (15.3%).
Vanguard Consumer Staples ETF (NYSEARCA:VDC)
With the entire U.S. equity market in the doldrums, it has been a rough time to be a stock investor. However, a few of the defensive sectors have been able to hold up better than most, including the traditional safe havens such as consumer staples.
Consumer staples firms have been a solid performer as of late and could continue to have a leadership role in the long term. That is because consumer staples firms remain more or less impervious to economic cycles and play a defensive role when the macro economy is under pressure. (Top Three Consumer Staples ETFs)
Investors seeking to play this with the broader basket of stocks at the lowest cost possible should invest in Vanguard Consumer Staples ETF. The fund provides exposure in stocks of companies that provide direct-to-consumer products based on consumer spending habits and are considered non-discretionary.
The ETF tracks the MSCI US Investable Market Consumer Staples 25/50 Index and tracks a broader basket of 108 consumer staples stocks. The fund has a total asset base of $1,031 million of which 64.1% is invested in the top 10 holdings.
Among the different industries, household products and soft drinks take the top spots with 37.3% of investment made in these two categories. VDC charges a rock bottom premium of 19 basis points for the investment.
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