Following the crowd has been disparaged quite a bit in the past. But sometimes the crowd knows what it’s doing. Going in the same direction in those cases is wise.
I bring this up because investors are flocking to a handful of sectors right now, as evidenced by the performances of three Vanguard exchange-traded funds (ETFs). Should you buy these ETFs too?
All of the top six Vanguard ETFs based on year-to-date performance focus on international stocks. The Vanguard Energy ETF (NYSEMKT: VDE) is the best fund, though, for U.S. stocks. It’s a much different story for this ETF this year than in 2024, when it managed to eke out a gain of only 3.44%.
The Vanguard Energy ETF owns 112 energy stocks. Its top holdings include ExxonMobil, Chevron, ConocoPhillips, EOG Resources, and Williams Companies.
I think there are three main reasons investors are buying energy stocks and providing a tailwind to this Vanguard ETF. First, the Trump administration’s tariffs and potential reciprocal tariffs from other countries probably won’t impact the energy sector as much as they will other sectors. Second, the administration’s other policies should be favorable for the sector. Third, investors know that energy stocks typically generate strong free cash flow and reward shareholders with dividends and stock buybacks.
Should you buy the Vanguard Energy ETF too? It depends on your investing style and time horizon. Income investors will probably like the fund’s dividend yield of 2.88%. If you’re investing for the long term, though, other Vanguard ETFs will probably deliver higher returns.
The Vanguard Health Care ETF (NYSEMKT: VHT) is another sector ETF that’s beating the market so far in 2025. It hasn’t been totally immune from the broader sell-off, though, with the ETF giving up some of its gains from earlier in the year.
This Vanguard ETF’s portfolio features 413 healthcare stocks. Its top holdings include Eli Lilly, UnitedHealth Group, AbbVie, Johnson & Johnson, and Abbott Labs.
I’m not surprised at all that the healthcare sector is performing well. Many investors view healthcare stocks as safe havens during periods of high volatility. That makes sense. The demand for healthcare products and services tends to hold up well regardless of what’s happening with the economy or stock market.
If the stock market resumes its downward trend, the Vanguard Health Care ETF will likely remain stronger than most other sectors. My primary concern with this ETF, though, is valuation. The average price-to-earnings ratio for the stocks in the fund’s portfolio is 30.4. This relatively steep multiple could work against the ETF if there’s a major market meltdown.
