For those in the market for ETFs, it is wise to consider offerings from Vanguard as the company has low expenses. ETFs with high expense ratios eat away at investors' gains over time. Therefore, with Vanguard, investors can reap the long-term benefits of low expenses while enjoying dividends and stock gains. The Vanguard Consumer Staples ETF (VDC) is one ETF to consider to help navigate through the rough waters of an uncertain economy.
Consumer staples are the products that are used on a regular basis regardless of how strong the economy is. The Vanguard VDC fund owns a total of 108 consumer staple stocks. Here is the breakdown of the specific types of companies owned as of September 30, 2012:
Distillers & Vintners
The ETF's expense ratio is a low 0.19%. This is 86% lower than the average expense ratio of funds with similar holdings. It has a dividend yield of 2.62%.
VDC is a passively managed fund, which means that it uses a replication strategy to match the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. This passive management strategy is what keeps the expense ratio low as compared to actively managed funds.
The VDC ETF has achieved gains of 7.85% annually for the past five years. This outperformed the return of the average consumer staples fund of 5.94%. Therefore, investors reaped the benefits of low expenses and better performance. The one-year gain was an impressive 22.96%.
Here's a look at the top five holdings of the fund:
% of Fund
5-Year Annual Expected Earnings Growth
Procter & Gamble (PG)
Coca Cola (KO)
Philip Morris (PM)
These companies are fairly valued which is expected for the stable, predictable companies that they are. There are usually not too many negative surprises with regard to these stocks, so valuations usually remain fair.
The average earnings growth rate for all of the stocks in the fund is 7.1%. Although not spectacular growth, it is steady and provides for stock appreciation over time. Interestingly, the VDC fund outperformed the market for the past five years. The fund did fall during the financial crisis, but not as drastically as the overall market. VDC fell approximately 28% as compared to the market's fall of about 50%. This is the primary reason to consider owning a consumer staples fund as the future of the economy is not always clear.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.