What Are Vanguard Exchange-Traded Funds?

Vanguard exchange-traded funds (ETFs) are a class of funds offered by Vanguard. Exchange-traded funds combine the diversification of mutual funds with a lower investment minimum required. Vanguard also offers real-time pricing. ETFs are traded the same way that individual stocks are traded.

Key Takeaways

  • Vanguard exchange-traded funds (ETFs) are a class of funds offered by Vanguard.
  • Vanguard's underlying indexes cover both individual sectors, such as materials and energy, and domestic and international indexes.
  • ETFs can have thousands of stocks or bonds in a single fund, so they provide more flexibility for portfolios.
  • Vanguard's ETFs are managed by portfolio professionals and are commission-free.

Understanding Vanguard Exchange-Traded Funds

There are currently more than 50 Vanguard exchange-traded funds, which are traded, like any other shares, on the U.S. stock exchanges, such as the New York Stock Exchange (NYSE) or Nasdaq. Their underlying indexes cover both individual sectors, such as materials and energy, and domestic and international indexes.

The Vanguard ETFs were previously known as Vanguard Index Participation Receipts (VIPERS). In their current form, Vanguard ETFs aim to track their underlying indexes as closely as possible and offer the flexibility of intraday trading.

By developing this class of low-cost funds, Vanguard sought to bring its longstanding leadership in the passive management market to the ETF space.

ETFs can have thousands of stocks or bonds in a single fund, so they provide more flexibility for portfolios. They include all the benefits of an index fund but provide more control for the individual investor.

Exchange-Traded Funds (ETFs) vs. Stocks vs. Mutual Funds

Owning an ETF is similar to owning a mutual fund; individual stocks or bonds offer the same built-in diversification and low costs. The funds are also tradable, like individual stocks.

Compared with stocks and bonds, however, ETFs offer less risk and less ongoing maintenance. Vanguard's mix of preselected stocks or bonds means that if one stock or bond in the fund performs poorly, others are likely performing well. Also, investors can leave security selection to professional fund managers. 

Compared with standard mutual funds, ETFs have some unique characteristics that might make them appealing for some investors. Both mutual funds and ETFs are less risky than investing in individual stocks and bonds and they offer a wide variety of options to meet specific investment goals. Vanguard's ETFs are managed by portfolio professionals and are commission-free.

In addition, ETFs require smaller investment minimums to start with. They also offer real-time, intraday pricing, assessing minute by minute changes, whenever they're bought and sold, whereas mutual funds are only priced at the close of a trading day.