Warren Buffett famously remarked, “Market timing is both impossible and stupid.” It’s quite clear where the legendary investor stands on the matter, isn’t it?
I largely concur with Buffett, though I acknowledge that some individuals might occasionally strike it lucky with market timing. However, there are instances when purchasing certain assets seems more prudent than at other times.
I believe we are currently in one of those opportune moments, and I have some thoughts on which exchange-traded funds (ETFs) to consider. Here are two Vanguard ETFs worth buying eagerly before September 18.
Real Estate Focus
First on the list, alphabetically, is the Vanguard Real Estate ETF, boasting a 1.04% yield. As the name suggests, this fund zeroes in on real estate, aiming to mirror the performance of the MSCI U.S. Investable Market Real Estate 25/50 Index. The “25/50” designation indicates that no more than 25% of the fund’s assets can be concentrated in a single issuer, and the total of all assets exceeding 5% in weight cannot surpass 50% of the index.
This Vanguard ETF holds 155 stocks with a median market capitalization of $31.9 billion. Unsurprisingly, the majority of these stocks are real estate investment trusts (REITs). Its top holdings include Prologis, American Tower, Equinix, Welltower, and Simon Property Group. Additionally, it maintains a significant position in the Vanguard Real Estate II Index Fund.
REITs are often favored by income investors. Consequently, the Vanguard Real Estate ETF provides a robust income, offering a distribution yield of 3.32% as of August 31, 2024, according to the latest data from Vanguard.
Vanguard is renowned for its low-cost funds, and this ETF is no exception, with an annual expense ratio of just 0.13%, compared to the average of 1.07% for similar funds.
Small-Cap Considerations
The second spot on my list is contested by two closely matched Vanguard ETFs: the Vanguard Small-Cap ETF (1.91%) and the Vanguard Small-Cap Value ETF (2.01%). Both target stocks with relatively small market caps, but the Vanguard Small-Cap Value ETF places a greater emphasis on attractive valuations. The average price-to-earnings ratio for its holdings is 15.6, compared to 19.2 for the Vanguard Small-Cap ETF.
The Vanguard Small-Cap Value ETF comprises 848 stocks, fewer than the 1,402 in the Vanguard Small-Cap ETF. None of its investments constitute more than 0.68% of the portfolio.
A slight drawback of opting for the Vanguard Small-Cap Value ETF over the Vanguard Small-Cap ETF is the slightly higher annual expense ratio of 0.07% compared to 0.05%. However, this difference is negligible when weighed against the lower valuations offered by the Vanguard Small-Cap Value ETF.
Reasons to Act Before September 18
Why should investors consider purchasing the Vanguard Real Estate ETF and the Vanguard Small-Cap Value ETF before September 18? Part of the rationale lies in the anticipated announcement of interest rate cuts by the Federal Reserve on that date.
The Federal Open Market Committee is slated to meet on September 17 and 18. On August 23, 2024, Federal Reserve Chairman Jerome Powell stated, “The time has come for our policy to adjust.” Recent employment and inflation reports bolster the likelihood of a Fed rate cut.
Moreover, both the Vanguard Real Estate ETF and the Vanguard Small-Cap Value ETF are poised to benefit from declining interest rates. REITs and small companies are particularly sensitive to interest rate fluctuations, as they often rely on borrowing to fuel growth. Lower rates enhance profitability.
Investors should be mindful that these Vanguard ETFs might experience declines if the Fed does not cut rates this week. However, I believe the odds of a rate cut are significant. Even if the Fed falls short of expectations, both the Vanguard Real Estate ETF and the Vanguard Small-Cap Value ETF are likely to be excellent long-term investments.
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