The S&P 500 recently reached a new all-time high, and many stocks are at or near their own 52-week highs. But there are two important things for ETF investors to know.
First, not all ETFs are near all-time highs. In fact, some are still down by 10% or more from their recent peaks. Second, just because a certain ETF is at a new high doesn't always mean that it's expensive. And with these principles in mind, here are three Vanguard ETFs that look incredibly attractive even with many stocks reaching new highs.
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Rate-sensitive sectors are still a bargain
The real estate sector hasn't exactly been a strong performer in recent years. In fact, the Vanguard Real Estate ETF (VNQ 0.60%) has produced a 73% total return over the past decade, compared with 264% for the S&P 500.
VNQ Total Return Price data by YCharts
However, it's important to point out that the last decade has seen two Federal Reserve rate hike cycles and a pandemic that essentially rendered commercial real estate inoperable for a period of time. The actual businesses of real estate investment trusts (REITs) have generally performed well -- it's just a highly rate-sensitive business. Not only do higher rates cause borrowing costs to rise, but commercial property values have an inverse relationship with the prevailing risk-free interest rates, like Treasuries.
While there's no way to know when the Fed will start cutting rates again, most experts agree that the general direction of interest rates over the next couple of years is likely to be downward. This should provide the tailwind the Vanguard Real Estate ETF needs to start producing outsized returns.
At a new high, but not expensive
The Vanguard International High Dividend Yield ETF (VYMI 0.11%) just hit a new all-time high on the day this article was written. But that doesn't necessarily mean it's expensive. In fact, compared with U.S. high dividend stocks, it looks extremely cheap.
This ETF owns a portfolio of about 1,550 companies based outside of the United States that have above-average dividend yields. But these aren't just companies you haven't heard of -- household names like Toyota and Nestle are among the top holdings, and there are several other major components that you're probably familiar with. As of this writing, the ETF has a 4.1% dividend yield, but of course it might be slightly different by the time you're reading.
Here's the key point. The average stock in the Vanguard International High Dividend Yield ETF's index has grown earnings at a 13.7% annual rate over the past five years and trades for just 12 times earnings. That's a remarkably low valuation, especially considering that the stocks in the U.S. counterpart Vanguard High Dividend Yield ETF (VYM 0.13%) have an average P/E of more than 19 and have grown earnings slower.
Of course, there are additional risks when investing in international stocks, such as foreign exchange rate risk, and there is still quite a bit of uncertainty surrounding U.S. trade policy. But this is a massive valuation gap, and it could still be a good time to buy.
Buy as long-term investments
To be clear, I think all three of these ETFs are attractive right now, and I own shares of all three in my own portfolio. But I bought them because I think they'll perform very well over the next few years -- not the next few weeks or months. Keep that in mind when considering if they're right for your goals.
