Vanguard invented the modern index fund, and not surprisingly, its most popular products are things like the Vanguard S&P 500 ETF, Vanguard Russell 2000 ETF, and others that track well-known indexes.

However, you may be surprised to learn that Vanguard offers more than 80 different index exchange-traded funds (ETFs), and a couple that you might not be familiar with could be primed to outperform in this bull market.

2024: The year of small caps and fixed income?

There are two major market trends I'm watching closely this year. First, small-cap stocks have an excellent chance of outperforming their large-cap counterparts, and especially the megacap tech stocks.

Small-cap stocks as a whole are trading at their lowest relative price-to-book valuations to the S&P 500 since 1999. Market strategist Tom Lee recently said that small caps could potentially gain 50% or more if rates interest start to fall and the valuation gap between small-cap and large-cap stocks starts to narrow.

Second, while fixed-income investments have generally underperformed their historical averages over the past decade or so, keep in mind that interest rates (and fixed-income yields) are significantly higher than they were 10 years ago. In simple terms, rising interest rates push bond prices down. So, while instruments like U.S. Treasury securities have higher yields right now, existing bonds' market values have fallen significantly in recent years.

That could be about to change. The Federal Reserve is widely expected to start lowering interest rates this year, which would likely push bond values higher -- especially those with a long time until maturity.

2 Vanguard ETFs to consider

To be sure, some of the more popular Vanguard index funds, like the Russell 2000 ETF mentioned earlier, could outperform. But looking beyond that, here are two in particular to keep an eye on.

Vanguard Extended Duration Treasury ETF

The Vanguard Extended Duration Treasury ETF (EDV 0.63%) invests in Treasury bonds of 20- and 30-year maturities, and has a 4.7% yield as of this writing. With $4.2 billion in total assets, it's one of Vanguard's smaller ETFs, but it could be a big winner as benchmark interest rates fall. In short, long-maturity Treasuries are extremely rate sensitive. Since the start of 2022, when the Fed's rate-hiking cycle began, the ETF has produced a negative 42% total return for investors, but its path could certainly reverse course as rates start to come down.

Vanguard Russell 2000 Value ETF

There's a solid case to be made that value stocks have more to gain as interest rates fall than growth stocks do. For one thing, value stocks are more likely to be dividend payers, and these stocks tend to face negative price pressure as rates rise. Plus, value stocks are more likely to use significant leverage (borrowed money) in their businesses, so lower borrowing costs could be a tailwind for them.

The Vanguard Russell 2000 Value ETF (VTWV 0.59%) focuses on small-cap value stocks. I already discussed the potential in small caps generally; this fund filters for a group of small caps I see as having lots to gain in a falling-rate environment. With just $1 billion in assets, this is a small Vanguard ETF, but one worth having on your radar in 2024.

The bottom line

I don't know for sure if small-cap stocks and fixed-income investments will perform well in 2024. Nobody does. But based on the information currently available, it appears that both categories could produce some excellent results for long-term investors, so these two ETFs could be great additions to your portfolio -- not just in 2024, but for years and decades to come.