Vanguard ETFs: Recommendations For 2023

With over 80 Vanguard ETFs and even more mutual funds, how is one to choose those that now appear to have the best prospects? Will your current holdings, or any new choices, continue last year’s carnage, or turn around to post a positive outcome in 2023?

Of course, there can be no definitive answer. Much depends on one’s outlook for inflation, economic growth, Fed policy, and international developments, among other factors. While some funds will most likely deliver positive returns if these variables turn out on the favorable side, others will perhaps merely hold one’s potential negative returns to a minimum if the mostly undesirable conditions of 2022 continue through 2023.

I like to think of my own expertise, based on many decades of experience with funds and writing a funds and ETF Newsletter for over 20 years, as sufficient to make valuable recommendations. But no man is an island, so, I decided to see what some well-known websites were recommending to their readers. Then, toward the end of the article, I present my own recommendations and my own straightforward reasons for them.

Methodology

Although there are perhaps as many different economic predictions for 2023 as there are knowledgeable people making such predictions, I searched the Internet for well-known sources focusing on suggesting what the best Vanguard ETF choices for 2023 might be given a forecaster’s view of the specific economic climate expected for the upcoming year. Surprisingly, there were not as many “hits” as one might expect.

Of course, unexpected events might completely change as the year progressed, throwing most current predictions out the window, but that’s what any prediction entails – the possibility that the prediction might prove to be totally wrong. Note that some of these forecaster’s funds may be good choices just for 2023, while others may be good long-term choices as well.

I chose to focus solely on Vanguard ETFs given their popularity with investors. But similar ETFs, or even mutual funds, could be equally likely to produce the kind of results as the Vanguard recommendations.

Note: Back in May of 2022, I wrote a similar article but it was not restricted to just Vanguard funds. It focused on what might lie ahead given the prospects of probable poor fund returns as the markets were being besieged by bear market conditions. Later in this article, I will review how remarkably prescient these prior recommendations turned out to be.

The New 2023 Recommendations

The following ETF recommendations appeared in an article entitled “7 Best Vanguard ETFs Of 2023” in forbes.com where you can see why each investment was chosen.

Below, I also show each recommended fund’s 2022 performance in bold. These results should be compared to the average 2022 performance of U.S. stock funds of -18.14% and U.S. bond fund performance of -9.5% as shown in the Wall Street Journal.

Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) +2.96%

Vanguard S&P 500 Index Fund ETF (VOO) -18.19%

Vanguard Emerging Markets Government Bond ETF (VWOB) -17.41%

Vanguard Value Index Fund ETF (VTV) -2.07%

Vanguard Total International Stock Index Fund ETF (VXUS) -16.09%

Vanguard U.S. Minimum Volatility ETF (VFMV) -5.72%

Vanguard Real Estate ETF (VNQ) -26.24%

The next set of recommendations appeared in an article on investorplace.com entitled “The 3 Best Vanguard ETFs for 2023.”

Vanguard Intermediate-Term Corporate Bond ETF (VCIT) -13.98%

Vanguard Large-Cap ETF (VV) -19.90%

Vanguard Growth ETF (VUG) -33.15%

Finally, the last 6 recommendations come from an article entitled “The 6 Safest Vanguard Funds to Own in a Bear Market” on kiplinger.com, recognizing that we are still in a bear market.

Vanguard High Dividend Yield ETF (VYM) -0.46%

Vanguard Health Care ETF (VHT) -5.62%

Vanguard Consumer Staples ETF (VDC) -1.80%

Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX) -4.48%

Vanguard Ultra-Short Bond ETF (VUSB) -0.37%

Vanguard Alternative Strategies Fund (VASFX) +2.18%

My Own Recommendations

I agree with many of recommendations given above. However, in investing for 2023, investors should take into account the Fed’s admonition that interest rates still need to rise to bring inflation under control. And when interest rates rise, highly volatile stocks tend to underperform. Additionally, most funds within the Growth category, with its still high current prices, are likely to find these prices unsustainable. On the other hand, international stocks are clearly undervalued, showing particular strength over the last three months.

Therefore, I would not recommend adding to or initiating an investment in a Growth fund such as VUG, or even VOO. Rather, I would agree with many of the defensive and Value oriented funds shown above.

On the bond side, I would stick with short-term bond choices such as VTIP and Vanguard Short-Term Corporate ETF (VCSH), as funds with longer durations, such as VCIT are likely to continue falling.

The Prior 2022 Expert Recommendations

As mentioned above, I previously considered the recommendations made by some experts in 2022. I reported on these recommendations my May 2022 article on Seeking Alpha entitled “ETF Investing in A Bear Market.” My own 2022 fund recommendations were presented on Seeking Alpha throughout the year.

How did these May recommendations turn out? Once again, these results should be compared to the average 2022 performance of U.S. stock funds of -18.14% and U.S. bond fund performance of -9.5%

Legg Mason Low Volatility High Dividend ETF (LVHD) -1.81% (Note: now a Franklin fund with the same fund symbol.)

Utilities Select Sector SPDR® ETF (XLU) +1.42%

Consumer Staples Select Sector SPDR® ETF (XLP) -0.83%

Vanguard Short-Term Bond ETF (BSV) -5.49%

VanEck Vectors Gold Miners ETF (GDX) -8.98%

ProShares Short S&P 500 ETF (SH) +18.07%

Vanguard High Dividend Yield Index Adm (VYM) -0.46%

Invesco DB Commodity Index Tracking (DBC) +19.34%

Vanguard Dividend Growth Inv (VDIGX) -4.88%

Final Words

The 2022 recommendations were remarkably successful compared to the average fund. As you can see, all of these recommended funds had much better results than the average stock and bond fund performance in 2022, even if many wound up in negative territory. If my selected 2023 recommendations by experts and myself shown above do nearly as well in outperforming the market averages, investors will be highly rewarded for including some of them in the current portfolios. But given the disparate focus of all of the above 2023 recommended funds, it is highly unlikely that all, or even most of them, will do better than the average fund as was the case for the 2022 recommendations.

As we should recognize, predicting stock and bond fund performance is likely, more often than not, at best a 50:50 proposition, with, most likely, only about half of recommendations, at most, subsequentially proving worthwhile. But perhaps, in expert hands, fund recommendations may provide substantial help, as my own articles have shown many times in the past.