In the four decades since its founding, the Vanguard Group has grown to be one of the largest investment companies in the world. At the core of that expansion has been a commitment to providing individual investors with low-cost solutions to gaining wealth. Vanguard is known for its mutual funds and is also a major player in the business of exchange-traded funds (ETFs).
Although other fund companies such as Schwab and Fidelity attempt to compete with Vanguard with low fees on selective funds, Vanguard can keep its low-cost edge across the fund spectrum based on a unique ownership structure.
Unlike other fund companies, which are either corporate-owned or owned by third-parties, Vanguard is owned by its funds. And the funds are thus owned by their investors. That means the profits generated by operating the funds are returned to investors in the form of lower fees. As such, it makes it very difficult for other companies, which are beholden to their shareholders, to compete on price.
- Vanguard is a leading provider of low-cost ETFs.
- ETFs can be evaluated in terms of expense ratios, but the holdings within the ETF and historical returns are important considerations as well.
- Vanguards ETFs that invest in large-cap stocks include the S&P 500 ETF (VOO) and the Total Stock Market ETF (VTI).
- Vanguard offers ETFs that invest in small-cap stocks, midcaps, value stocks, growth stocks, bonds, and international markets.
Vanguard quickly introduced its suite of ETFs when the investment product gained widespread popularity. The mutual fund operator has since become the second-largest provider of ETFs behind Blackrock. Vanguard’s unique cost structure, the economies of scale it has achieved, and the total number of assets under management (AUM) allow it to offer its ETFs at the lowest cost available in the market.
Below are 10 of the firm's cheapest ETFs by expense ratio, with data current as of September 12, 2019.
The Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF is one of Vanguard’s lowest-cost ETFs with a 0.03% expense ratio. It is also among the largest with $490 billion in assets under management (AUM), according to Vanguard's website.
The fund seeks to track the performance of the Standard & Poor’s 500 Index. The portfolio thus holds the same 500 names as the index. The median market capitalization of companies in the fund is $115 billion and top holdings are Microsoft, Apple, Alphabet, Amazon, and Facebook. The top three sectors invested by the ETF included information technology, healthcare, and financials.
The Vanguard S&P 500 ETF returned 10.07% annually over the last five years and 2.85% during the past year. Year-to-date, shares returned 21.4%.
The Vanguard Total Stock Market ETF (VTI)
The Vanguard Total Stock Market ETF is Vanguard’s oldest and largest ETF with $830 billion in AUM. The fund covers the entire U.S. stock market for a rock bottom fee of 0.03%. The ETF holds approximately 3,600 stocks in its portfolio, with an average market capitalization of $72.5 billion. The top three sectors are technology, financials, and consumer services. Its top holdings are Microsoft, Apple, Amazon, Alphabet, and Facebook.
According to Vanguard, the fund's 10-year return is 13.4%, its 5-year return is 9.58%, and its year-to-date return is 21.1%.
The Vanguard Total Bond Market ETF (BND)
With $232 billion in assets under management, the Vanguard Total Bond Market ETF offers investors broad exposure to the fixed-income market. The expense ratio charged by Vanguard for this ETF is 0.035%.
The fund holds roughly 8,500 bonds in its portfolio: including 44% allocated to Treasury/agency bonds, 22% to government mortgage-backed bonds, and 16% to industrial bonds. The fund has returned 3.3% annually over the last five years and 3.8% over the last 10.
The Vanguard Growth ETF (VUG)
The Vanguard Growth ETF invests in stocks of large companies with high-growth potential and charges an expense ratio of 0.04%. The $92.5 billion in assets are weighted towards technology stocks. Apple, Amazon, Alphabet, Microsoft, and Facebook comprise the top five out of almost 300 holdings. The fund returned 14.85% annually over the last 10 years, 11.7% over the last five years, and 26% year-to-date.
The Vanguard Large-Cap ETF (VV)
The Vanguard Large-Cap ETF invests in stocks representing the largest 85% of the U.S. stock market, which ranges from larger multinational companies to midcap ones. The fund’s expense ratio is 0.04%.
The fund, which has $13 billion in assets, holds approximately 600 stocks in its portfolio, with an average market cap of $106 billion. Technology, financials, and consumer services represent the biggest sectors within the fund and the top five holdings include Microsoft, Apple, Amazon, Alphabet, and Facebook.
The fund's 10-year annual return is 13.4%, its five-year return is 10%, and the year-to-date the return equaled 21.1%.
The Vanguard Value ETF (VTV)
The Vanguard Value ETF invests in approximately 350 large-cap value stocks in the U.S. and comes with an expense ratio of 0.04% This ETF has $81.7 billion in AUM and holds 344 stocks from numerous industry groups: financials, healthcare, and consumer goods are the largest sectors. The average market cap of the companies in the ETF is $91.2 billion and the top five holdings are Berkshire Hathaway, Procter & Gamble, Johnson & Johnson, JPMorgan Chase, and Exxon Mobil.
Over the last 10 years, the returned 12.05% annually and over five years, 8.35%. Its year-to-date return was almost 17%.
The Vanguard Midcap ETF (VO)
The Vanguard Midcap ETF has an expense ratio of 0.04%, providing investors with low-cost access to a diversified group of medium-sized companies in the U.S. It has $107 billion AUM, which is invested in nearly 400 stocks that have a median market cap of $16 billion.
Financials account for 21% of the portfolio. Technology, consumer services, and industrials represent the next biggest sectors. The top five holdings are Twitter, Newmont Gold, Fiserv, Advanced Micro Devices, and Xilinx.
The fund's 10-year return is 14.1% and five-year return is 9.37%. It has returned 25.35% year-to-date.
The Vanguard Small-Cap ETF (VB)
The Vanguard Small-Cap ETF invests in a diversified group of small companies. The fund has an expense ratio of 0.05%. Assets under management total $94 billion and are invested in 1,400 stocks, with financials, industrials, and technology representing the biggest sectors. Burlington Stores, MarketAxess Holdings, STERIS plc, Atmos Energy, and IDEX Corp. are the top five holdings. Over the last 10 years, the ETF returned 12.7% annually and, over the last five, 7.2%. Its year-to-date return was 20.5%.
The Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
With more than $77.7 billion in AUM and an expense ratio of 0.06%, the Vanguard Short-Term Inflation-Protected Securities ETF gives investors access to bonds backed by the federal government. It also aims to provide protection from inflationary risks or other unexpected inflationary surprises.
With $20 billion in assets, the fund is invested in just 17 government-backed bonds. Among the holdings, 42% are three to five-year bonds and one to three-year bonds comprise 41% of the portfolio. The remaining 17% consists of bonds with maturities of less than one year.
The fund, whose benchmark index is the BloomBarclays US 0-5 Year TIPS Index, returned 1% annually in five years and 3.5% year-to-date.
The Vanguard FTSE Developed Markets ETF (VEA)
With more than $110 billion in AUM, the Vanguard FTSE Developed Markets ETF has become a very popular low-cost way for investors to gain broad exposure to foreign developed economies and markets. The fund’s expense ratio is 0.05%.
The fund invests heavily in the European and Pacific markets and holds almost 4,000 stocks. The median market cap for the fund is $28.5 billion and the top five holdings are Royal Dutch Shell, Nestle, Samsung Electronics, Novartis, and Roche Holding. The fund returned 5.1% annually over the last 10 years and 2.1% over the last five years. Year-to-date, it is up 13.1%.