Beyond VIG, VYM & VOO: 6 Lesser-Known Vanguard ETFs That Are Just As Intriguing

Within Vanguard's lineup, just a few ETFs get all the attention, but there are others you may not be aware of with compelling investment cases of their own!

Vanguard is one of the undisputed kings of the ETF industry. With more than $2 trillion spread across 80+ ETFs, it lags only BlackRock’s iShares family of funds to total assets managed.

Vanguard’s lineup, however, is a little top-heavy. Its two big tentpole funds - the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI) - account for nearly 1/3 of those assets alone. The top 10 ETFs account for more than 60% assets. If you ask any Vanguard investor what they have their money in or what the first ETF is that pops into their head, your answers would more than likely be one of those two, the Vanguard Dividend Appreciation ETF (VIG), the Vanguard High Dividend Yield ETF (VYM) or the Vanguard Real Estate ETF (VNQ). While there’s nothing inherently wrong with any of these funds, they do pull attention away from what are actually some pretty solid ETFs elsewhere in the Vanguard roster.

Well, today we’re going to start rectifying that problem!

Both here and over on TheStreet, I’m going to spend time in December highlighting some of the smaller, unloved, underappreciated, under-the-radar ETFs in the marketplace. Of the roughly 3,300 ETFs available, half of them have less than $100 million in assets. It’s time to shine some light on these tiny funds!

Today, we’ll start with Vanguard (where there are really no “tiny” funds in their lineup, but rather tiny relatively speaking). Here are six ETFs you may not be familiar with from the fund giant that should be on your radar!

Vanguard Ultra-Short Bond ETF (VUSB)

VUSB is unusual because it’s actively-managed, something that Vanguard is not known for and doesn’t usually mess around with (the only other active funds in Vanguard’s lineup are its suite of factor ETFs, which have mostly been duds and one has already been closed). With an expense ratio of just 0.10%, however, it’s competitively priced among its ETF peers in this segment, making the active management a distinct advantage for investors.

VUSB will invest in a diversified portfolio of investment-grade bonds issued primarily by corporations, but there are minor allocations made to government issues as well. It’s anticipated that the fund’s duration will be somewhere between 0 and 2 years, although the current duration is about 0.9 years. Roughly 30% of the portfolio’s assets are invested internationally, so there is a global flavor to this fund.

Currently, VUSB yields about 5.5%, which is about 25 basis points higher than you’ll find in Treasury bill ETFs at the moment. Vanguard generally does a pretty good job of risk-managing their portfolios, which is something that will come into play more and more in the coming months. Within the overall short-term fixed income space, this is a great fund for those looking at T-bill alternatives.

Vanguard Mega Cap ETF (MGC)

For all the attention that the magnificent seven stocks got this year (along with mega cap growth/tech in general), I’m a little surprised that MGC didn’t get more attention. VOO and VTI are two of the top 5 ETFs in terms of net inflows year-to-date with a combined $56 billion in net new money, but MGC has only attracted less than $200 million.

MGC has outperformed the S&P 500 this year, not surprisingly, because of its added tech exposure. The fund has 36% of its assets invested in tech compared to 28% for the S&P 500. It also has a combined 33% weighting to the magnificent seven stocks vs. 27% for the S&P 500. That overexposure should have led to more interest for this ETF, but investors were mostly focused on tech-specific ETFs and/or plain vanilla S&P 500 funds. Mega-cap funds, in general, are very under-the-radar and it shouldn’t be surprising that MGC languished at least in terms of the attention factor.

If you’re an investor that’s looking for a simple way to overweight large-cap and tech even relative to the S&P 500, this is a great way to do it. With a 0.07% expense ratio, the cost is immaterial.

Vanguard Emerging Markets Government Bond ETF (VWOB)

Fixed income, in general, has been a rough ride over the past two years, so you can imagine what investors have been thinking about riskier emerging markets bonds. The case for EM bonds though is growing more encouraging. The falling dollar is making yields look more attractive. There’s incredible value (although emerging markets have been cheap for years and it hasn’t really worked out). Emerging markets companies are beginning to raise earnings estimates and some EM central banks are beginning to cut rates already. The environment for this group has improved and investors shouldn’t ignore it.

In terms of this corner of the ETF marketplace, VWOB might be the top choice. It ranks #2 in my emerging markets bond ETF rankings only behind the VanEck JPMorgan EM Local Currency Bond ETF (EMLC), but it’s the cheapest at just a 0.20% expense ratio. VWOB is a solid choice in this space on its merits alone, but the backdrop that could make it one of the top performers in the entire fixed income space makes this ETF appealing.

Vanguard Extended Duration Treasury ETF (EDV)

Yes, long-term Treasuries have been one of the worst investments over the past two years, but we have to view these ETFs from a standpoint of portfolio construction and opportunity more than what sector they’re invested in. In EDV’s case, it allows for cheap entry that’s little covered in the ETF space - 20-30 year Treasury STRIPS. It’s only major competitor in this space is the PIMCO 25+ Year Zero Coupon U.S. Treasury ETF (ZROZ). Comparing the two, EDV has been around for longer, has more than twice the assets, is cheaper to trade and has an expense ratio of just 0.06% compared to the 0.15% expense ratio of ZROZ.

STRIPS, however, aren’t for the faint of heart. They’re more volatile than the iShares 20+ Year Treasury Bond ETF (TLT), which makes the reward potential higher, but also the risk. With a duration of 24 years, that means this fund would, in theory, be expected to change in price by 24% for every 1% move in interest rates. Given that bonds are just as volatile as stocks right now, expect EDV to experience some wide swings. Still, I’m happy that this ETF exists as an option for investors and Vanguard does it better than anyone.

Vanguard Russell 3000 ETF (VTHR)

You hear a lot of people talking about the Russell 1000 index as their proxy for large-cap stocks and the Russell 2000 to represent small-caps. How about an ETF that invests in both of them at the same time? It may be a bit surprising that there are only two ETFs out there that track the Russell 3000 index - this one and the iShares Russell 3000 ETF (IWV). Even though IWV is six times larger than VTHR in terms of assets, VTHR has just half the expense ratio. With the AUM level more than large enough to ensure liquidity in trading, the Vanguard ETF is the easy choice for me.

Investors may ask what separates this ETF from the Vanguard Total Stock Market ETF (VTI) since both target the entire U.S. equity market. In terms of performance and volatility, you’ll probably see very little difference between the two. The big differentiator is portfolio composition. VTI invests in nearly 4000 stocks, most of the extras coming from the small- and micro-cap worlds. Many investors want to avoid this riskier end of the market altogether (even though it accounts for very little exposure within the fund itself). For some, paying a few extra basis points in cost might be worth it to avoid these tiny companies in their portfolios.

Vanguard Total World Bond ETF (BNDW)

This last ETF might be the best deal of all! The Vanguard Total Bond Market ETF (BND) has become the biggest bond ETF in the world with nearly $100 billion in assets. With such broad bond market coverage and a microscopically small 0.03% expense ratio, it’s easy to see why. But why not upgrade your portfolio to cover the entire global bond market? For just two basis points of additional expense, you can have it and it makes a lot of sense in most portfolios.

In reality, BNDW is just a 50/50 combination of BND and the Vanguard Total International Bond Market ETF (BNDX). For some, that 50/50 split will be too much exposure to the international markets. In that case, there’s nothing wrong with using BND and BNDX individually to create your own personalized asset allocation. Otherwise, BNDW does a great job of giving you both in a single product.