This Vanguard ETF Is Up 22% This Year and Still Worth Buying for the Long Term
Vanguard’s stable of cheap, high-performing funds has made it the largest and most popular exchange-traded fund (ETF) manager in the world. The best of the bunch to invest in right now might be the Vanguard U.S. Momentum Factor ETF (VFMO +0.34%).
The ETF has been one of Vanguard’s best performers in recent years. It has returned 22% year to date and has posted an average annualized return of 29% over the past three years, beating the S&P 500. It is Vanguard’s fourth-best performer year to date and third-best over the past three years. It was launched in 2018, so it does not yet have a 10-year track record.
Here’s why it should continue to outperform in the potentially rocky years ahead.
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A momentum play
Many strategists, including those from Vanguard, see the next 10 years as challenging for markets, particularly large caps, given their high valuations, pushed higher from the now four-year bull market. Vanguard strategists see large caps and growth stocks being outperformed by value, small-cap, and international stocks over the next 10 years.
That’s one major reason why the Vanguard U.S. Momentum Factor ETF is a strong long-term investment choice.
Vanguard Wellington Fund – Vanguard U.s. Momentum Factor ETF
Today’s Change
(0.34%) $0.78
Current Price
$228.56
Key Data Points
AUM
$1.9B
Dividend Yield
0.59%
Expense Ratio
0.13%
Top Holdings
KLAC
1.24%
AMAT
1.22%
MU
1.22%
It is an active fund based on a quantitative model that seeks out stocks of all market-cap sizes that have forward price momentum. The model evaluates U.S.-based large-, mid-, and small-cap stocks for strong recent performance subject to certain screens designed to promote diversification and mitigate exposure to less liquid stocks.
It currently holds 695 stocks, with no stock weighted more than 1.1% in the portfolio. The top three holdings are Advanced Micro Devices (AMD -0.82%), Marathon Petroleum (MPC +0.70%), and Valero Energy (VLO +0.39%).
It is also actively managed, so the portfolio management team can make changes to the fund as necessary.
Built to outperform in down markets
The design and management of this ETF seeks to ensure that in any given market, the fund contains stocks of any size that are outperforming. This should be even more critical during downturns or sluggish markets for large caps, which experts predict may lie ahead over the next 10 years.
For example, in the bear market of 2022, the S&P 500 was down 19% and the Nasdaq Composite was off 33%. This ETF beat both of those benchmarks, with just a 14% decline. And, as the three-year track record shows, it has beaten the S&P 500 over the past three years as well, during a bull market.
This fund’s ability to navigate good markets and bad markets is why this might be one of the best Vanguard ETFs to own over the long term.
