In this piece, we’ll check in on some of the more underrated exchange-traded fund (ETF) products that may be worth looking into as the great bull market runs for another year. Undoubtedly, it can pay dividends to go beyond index funds, especially if you’re looking for better diversification or more exposure to certain sectors, geographies, or themes.
Indeed, sometimes the best ideas lie in a corner of the stock market that you won’t be able to take full advantage of through an index fund that follows in the footsteps of either the S&P 500 or Nasdaq 100.
Let’s check in on three intriguing and overlooked ETFs worth watching and adding to the radar for this new year if you’re looking beyond the S&P 500 for better diversification, more of a value focus, or more emphasis on growth.
Vanguard FTSE All-World ex-US Small-Cap ETF (VSS)
Vanguard FTSE All-World ex-US Small-Cap ETF (NYSEARCA:VSS) is a fantastic ETF for investors looking to invest outside of the red-hot U.S. stock market. Undoubtedly, the S&P 500 has been the place to be for big gains in recent years. However, for those who are more worried about the potential for a correction than a third straight year of more than 20% returns, it’s worth checking out an internationally-focused fund.
What’s most intriguing about the VSS is that it can help improve upon two diversification traits many portfolios may lack: geography and market cap. Indeed, diversifying across geographies can come with its perks. For those seeking growth but don’t want to increase their exposure to America’s top mega-cap titans, the VSS is a great option.
The VSS provides broad exposure to thousands of small-cap names across various developed and emerging nations that can outgrow the larger caps over the long haul.
With a mere 0.08% expense ratio, the VSS stands out as one of the gold standards for those seeking to beef up their foreign small- and mid-cap exposure. Shares of the VSS are down around 20% from their 2021 highs and could be worth checking out for the perfect mix of growth and value.
Vanguard U.S. Minimum Volatility ETF (VFMV)
The Vanguard U.S. Minimum Volatility ETF (VFMV) is another low-cost solution for investors who want to minimize potential damage in case the S&P 500 plunges into correction at some point this year but aren’t yet convinced it’s time to sell out of equities as a whole.
The fund sticks with U.S. stocks but is comprised of lower-beta (less market risk) value names, many of which also sport hefty dividend yields. Indeed, you’re not getting a whole lot of Mag Seven exposure with this ETF, which boasts a 1.46% dividend yield alongside a low 0.7 beta.
Unsurprisingly, the VFMV is overweight consumer staples, which tend to hold their own better in the face of recessions and bear markets, while being underweight technology, a sector that could be most at risk come the next big market sell-off. I’m a big fan of the ETF for investors looking to derisk their portfolios for the new year.
Vanguard Dividend Appreciation ETF (VIG)
Finally, we have the Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), a low-cost (0.06% expense ratio) that has been faring decently in recent years, up 17% in the past year but has still been trailing the S&P 500.
With a 0.84 beta and a juicy 1.73% dividend yield, the VIG may be a somewhat smoother ride should the tides turn lower. Further, the ETF is focused on tracking the S&P U.S. Dividend Growers Index, an index that prioritizes firms that have a long history of growing their dividends consistently.
You’re gaining a broad mix of some very high-quality companies, most of which are featured at the top of the S&P 500. The key difference is that the weighting is on the dividend growers rather than the firms with the largest market caps. If you’re seeking broader exposure and want more emphasis on a steady “all seasons” type of growth rather than excessive AI exposure, this fund may be for you.
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