High-flying growth stocks usually cause the most excitement for investors. However, there can be times of transition in the market when other assets are more attractive. I think we're in such a period now.
Exchange-traded funds (ETFs) arguably offer one of the best ways for investors to successfully navigate this market transition. With that in mind, here are three ETFs that are screaming buys in August.
1. iShares Russell 2000 ETF
Small-cap stocks are in again. One key reason why is that the Federal Reserve could cut interest rates soon. Smaller companies tend to benefit more from rate cuts than larger companies do.
You could try to pick individual small-cap stocks to buy. Another alternative, though, is to buy all of them in one fell swoop. The iShares Russell 2000 ETF (IWM +0.04%) allows you to easily take that route. This ETF attempts to track the performance of the Russell 2000 index and currently owns 1,986 small-cap stocks.
NYSEMKT: IWM
Key Data Points
Unlike the large-cap S&P 500 index ETFs, the iShares Russell 2000 ETF doesn't have a nose-bleed valuation. The average price-to-earnings ratio of the stocks in its portfolio is a relatively low 16.2.
The iShares ETF's annual expense ratio is 0.19%. That's higher than some small-cap ETFs, but not unreasonable.
2. Vanguard Long-Term Bond ETF
In February, Charles Schwab recommended that investors consider buying long-term bond funds ahead of interest rate cuts. The Wall Street Journal recently published an article titled, "Investors Embrace Bond Funds Before Rates Start to Fall." I don't think it's too late to embrace bond funds. And the Vanguard Long-Term Bond ETF (BLV 0.10%) looks quite huggable.
NYSEMKT: BLV
Key Data Points
This Vanguard ETF attempts to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index, which focuses on long-term investment-grade U.S. bonds. The ETF currently owns 3,091 bonds with a yield to maturity of 5.2%.
Vanguard is known for its low-cost funds. The Vanguard Long-Term Bond ETF certainly fits the bill with an annual expense ratio of only 0.04%. By comparison, the average expense ratio of similar funds is 0.83%.
This ETF hasn't performed well in recent years. But with the prospects of rate cuts this year that could soon change.
3. Vanguard Small-Cap Value ETF
We already have one small-cap ETF on the list. Why add another? Because history is on the side of the Vanguard Small-Cap Value ETF (VBR 0.49%).
NYSEMKT: VBR
Key Data Points
Small-cap value stocks have historically been the best-performing asset over the long run. The Vanguard Small-Cap Value ETF attempts to track the performance of the CRSP U.S. Small Cap Value Index, which focuses on small-cap stocks with attractive valuations.
This ETF owns 848 stocks, all of them based in the U.S. The average price-to-earnings ratio of the stocks is 14.1, a low valuation multiple in the eyes of many investors.
The Vanguard Small-Cap Value ETF isn't quite as cost-effective as the other Vanguard ETF on our list. Its annual expense ratio is 0.07%. However, that's still well below the average expense ratio of 1.12% for similar funds.
