Tag Archives: Vanguard Total Stock Market ETF

Vanguard Takes 4 of 5 Best for 2011

Steven Goldberg at Kiplinger.com writes a lot about ETFs. He starts out his article on the 5 best ETFs for 2011, telling you the worst ones to buy.

He doesn’t like tiny ETFs that invest in a single industry or a single country. I don’t like tiny ETFs, too much risk with an unproven idea. But single industry ETFs can be quite useful. Do you think the oil industry is going to rally this year? Buy the Energy Select Sector SPDR Fund (XLE).He doesn’t like exchange-traded notes, which are essentially debt instruments backed only by the company that issues them. These can be risky too, as in the case of Lehman ETNs. However, I think for most firms, credit risk is not an issue.

Goldberg thinks the majority of ETFs are little more than high-priced gimmicks. Definitely true for some. However, he doesn’t like the WisdomTree family of ETFs, which weights holdings based on dividends or earnings rather than on the more-traditional basis of market capitalization. I think dividend-weighted indexes have less volatility and don’t fall as much in market crashes. I do agree that actively managed ETFs aren’t ready for prime time, either.

Goldberg likes:

  • Vanguard Mega Cap 300 Growth (MGK), he says put 40% of your portfolio in this.
  • iShares MSCI EAFE Growth Index (EFG)
  • Vanguard Total Stock Market ETF (VTI)
  • Vanguard Europe Pacific (VEA)
  • Vanguard Emerging Markets Stock (VWO)

If You Can’t Beat ‘Em, Join Em

If you can’t beat ’em, join em.

The word Vanguard describes the person or entity at the forefront in any movement, field, or activity. While the Vanguard Group mutual fund company led the charge into index funds for retail investors, it hasn’t been able to take that position in the ETF field.

On Tuesday, Vanguard announced it would sell its entire line-up of ETFs commission-free to its brokerage clients. This comes on the heels of Charles Schwab and iShares offering commission-free ETFs. However, by offering all 46 of its ETFs, Vanguard now offers the largest selection of funds without commissions. Vanguard also lowered the fees to trade stocks and non-Vanguard ETFs to the range of $2 to $7.

Three months ago, iShares offered to sell 25 of its ETFs on a commission-free basis on the Fidelity Investments platform. This came in response to Schwab’s move to offer free ETF trades on its Web site when it launched its first ETFs in November.

Since ETFs trade on stock exchanges, they must be bought through brokers. Hence, investors must pay commissions. These commissions have been one reason standing in the way of investors using ETFs in a dollar-cost averaging investment strategy. Because of this many no-load mutual funds have been able to withstand competition from ETFs. Even with just $10 trades, this comes out to a 10% on a monthly dollar-cost averaging investment of $100. By removing commissions, these firms are taking direct aim at the no-load mutual fund business.

Already, Vanguard posted significant growth in its ETF division. It’s the third-largest ETF company in terms of assets with $108.8 billion at the end of April, more than double the $50.7 billion in the year-ago month. Year-to-date, Vanguard has seen the most net cash inflows in the industry, $11.7 billion, according to Bloomberg.

Vanguard ETF’s offer some of the lowest expense ratios in the ETF industry, with an average of just 0.18%, compared with the industry average of 0.52% according to Lipper. With the addition of commission-free trades, Vanguard could see its growth rate increase even further.

Its top selling ETFs are the $24 billion Vanguard Emerging Markets ETF (VWO), the $15 billion Vanguard Total Stock Market ETF (VTI), and the $7 billion Vanguard Total Bond Market ETF (BND), according to Bloomberg.

For more commentary see:

The Wall Street Journal

Investment News

ETF Trends

Index Universe