Vanguard US Minimum Volatility ETF

VFMV

Market cap $296M

Vanguard U.S. Minimum Volatility ETF deserves a buy rating due to its diversified, low-volatility portfolio, steady growth holdings, and attractive valuation compared to broader U.S. funds. The ETF's top holdings, like Johnson & Johnson, Texas Instruments, and Verizon, offer resilience, consistent growth, and favorable valuations. VFMV's lower volatility, competitive expense ratio, and sector diversification make it a compelling choice amid high S&P 500 valuations.

The Vanguard U.S. Minimum Volatility ETF aims for long-term capital appreciation by investing in U.S. stocks that minimize volatility relative to the broad market. The ETF uses a quantitative model to select U.S. large, mid, and small-cap stocks with strong recent performance, ensuring portfolio diversification and liquidity. With the S&P 500 experiencing a -10% correction, this ETF offers retail investors a way to protect their portfolios while staying invested in equities.

For investors seeking momentum, Vanguard U.S. Minimum Volatility ETF VFMV is probably on the radar. The fund just hit a 52-week high and is up 20.46% from its 52-week low price of $106.80/share.

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VFMV provides exposure to a well-diversified basket low-volatile stocks. Its expense ratio is 0.13% and VFMV has $155 million in assets under management. Historically, VFMV has provided some downside protection compared to its benchmark, the Russell 3000 Index. However, other ETFs have done just as well and have recovered quicker after large drawdowns. While VFMV satisfies a "flight to stability" goal, it's not as strong as its peers on quality, which I offer as an explanation for its disappointing total returns.

Volatility spiked in the broader indexes after the Federal Reserve indicated that it could keep interest rates higher for longer. The S&P 500 fell 3% on Dec. 18, and the Nasdaq Composite tumbled 3.6%.

There was a time when low-volatility exchange-traded funds (ETFs) were all the rage. However, when you have a market environment where the leading index, the S&P 500, gains double-digit annual returns in seven of the last 11 years, including 20% or higher gains in three of the last five years, low-volatility ETFs aren't going to gain much traction.

Vanguard offers factor-based ETFs that have shown outstanding performance compared to unmanaged, index-based comparison ETFs. Factor-based ETFs have now become mainstream investments, with a market share of over 20% globally. Assets under management for factor-based investments have grown significantly, leading many investors to include factor funds in their portfolios.

Most investors have never heard of so-called "factor funds" but four of five such Vanguard factor funds have outperformed Vanguard ETFs of similar composition. Factor funds focus on portfolios that have stocks with past characteristics such as momentum, quality, and low volatility. Outperformance has been consistent since inception, except for a fund with a focus on low volatility.