The past year has been great for the S&P 500, with top growth stocks like Nvidia reaching all-time highs. However, this surge is largely due to these stocks’ significant presence in the index and their high-growth potential. This means that many exchange-traded funds (ETFs) that don’t hold these names would have struggled to beat the S&P 500.
Fortunately, three ETFs – Vanguard Dividend Appreciation ETF, Vanguard S&P 500 Value ETF, and Vanguard Energy ETF – have performed underwhelmingly this year but possess solid quality and reasonable valuations. These funds are poised to shine in 2025 by offering a unique combination of quality stocks and attractive yields.
Vanguard Dividend Appreciation ETF is an unusual blend of growth stocks and value stocks that tracks the S&P U.S. Dividend Growers Index. Its top holdings include Apple, Broadcom, Microsoft, JPMorgan Chase, and ExxonMobil, with each company’s dividend payments carefully selected based on their dividend history.
The fund avoids low-yielding companies solely due to high stock prices, focusing instead on stocks that regularly increase dividends. This approach allows investors to capture the benefits of dividend-paying stocks without the risk of overpaying for them.
Vanguard S&P 500 Value ETF, on the other hand, is a good buy for those seeking an investment with less exposure to premium-priced sectors and a higher yield. The fund offers a lower P/E ratio and a higher yield compared to the S&P 500, making it an attractive option for boosting passive income.
The Vanguard Energy ETF reflects the energy sector’s performance, which has put up decent gains this year but not as strong as the S&P 500. Its top-heavy portfolio is dominated by ExxonMobil and Chevron, two elite balance sheet companies with diversified business models. The ETF offers a low P/E ratio and a yield of 3.3%, making it an attractive option for investors seeking diversification in the energy sector.
While no one can predict the S&P 500’s performance in the near term, investing in quality companies at reasonable valuations has historically been a winning strategy. As the market becomes increasingly sensitive to growth-driven company results, focusing on well-valued ETFs like the Vanguard Dividend Appreciation ETF and Vanguard Energy ETF may provide a more stable route for investors seeking long-term returns.
Source: https://www.fool.com/investing/2024/12/07/vanguard-etf-underperform-sp-500-buy-2025