Vanguard Exchange-Traded Funds: How it Works, Types

What Are Vanguard Exchange-Traded Funds?

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

Key Takeaways

• Vanguard ETFs offer diversification and have a lower investment minimum.
• They cover individual sectors and domestic and international indexes.
• ETFs provide flexibility for portfolios and are managed by professionals.

Understanding Vanguard Exchange-Traded Funds

Vanguard exchange-traded funds (ETFs) are traded on U.S. stock exchanges like the New York Stock Exchange (NYSE) or Nasdaq. They cover individual sectors and domestic and international indexes.

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

By creating low-cost funds, Vanguard brings its passive management leadership to the ETF space.

ETFs offer flexibility with thousands of stocks or bonds in a single fund, combining the benefits of an index fund with individual control.

Types of Vanguard Exchange-Traded Funds

U.S. Stock ETFs

Vanguard offers ETFs focused on U.S. stocks, divided by company size and performance. Large-cap, mid-cap, and small-cap ETFs target different company sizes. Growth, value, and blend ETFs invest in companies with varying growth rates and valuations.

International Stock ETFs

Vanguard has global, international, and emerging markets ETFs. Global stock ETFs invest globally including the U.S., while international stock ETFs exclude U.S. stocks. Emerging-market ETFs invest in developing countries.

Vanguard Sector ETFs

Vanguard’s sector ETFs invest in specific sectors of the economy, such as telecommunications, energy, materials, information technology (IT), and healthcare. These ETFs allow investors to target market sectors without choosing individual companies.

U.S. Bond ETFs

Vanguard offers 15 different U.S. bond ETFs categorized into government, investment-grade corporate, a blend of government and corporate, and tax-exempt bonds. Government bonds have low dividend yields but lower default risk. Corporate bonds have higher-interest rates but higher default risk. Tax-exempt ETFs are ideal for investors in high tax brackets with taxable brokerage accounts.

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

ETFs and mutual funds offer built-in diversification and low costs. They are tradable like individual stocks.

Compared to stocks and bonds, ETFs offer less risk and ongoing maintenance. Vanguard’s preselected stocks or bonds allow for diversification. Professional fund managers handle security selection.

ETFs and mutual funds offer options to meet investment goals with less risk than individual stocks and bonds. Vanguard ETFs are managed by professionals and are commission-free.

ETFs have smaller investment minimums and offer real-time, intraday pricing, while mutual funds are priced at the end of the trading day.