Potentially Wise Choices for Vanguard ETFs Given Trump's Potential Success in Tariff Policies
Potentially Wise Choices for Vanguard ETFs Given Trump's Potential Success in Tariff Policies
Vanguard boasts an impressive assortment of 86 exchange-traded funds (ETFs). Given this vast selection, one might expect Vanguard to have an ETF tailored for any market scenario. However, what if Trump's proposed tariffs of up to 20% on all imports and potentially higher tariffs on Chinese imports materialize? Many economists argue these tariffs could trigger another wave of inflation. Various studies of Trump's proposals suggest negative implications for the U.S. economy.
But fret not, as Vanguard might have some suitable ETF options if these projections hold true. These three Vanguard ETFs could be worth considering if Trump follows through on his tariff promises:
1. Vanguard Domestic Consumer Staples ETF
The Vanguard Domestic Consumer Staples ETF (VDC 0.56%) is composed of 104 domestic consumer staples stocks. Notable holdings include Procter & Gamble, Costco Wholesale, Walmart, Coca-Cola, and Philip Morris. These five stocks account for almost half of the ETF's total assets.
The primary reason this Vanguard ETF might fare well with high tariffs is that it primarily invests in businesses that sell essential goods. Even when tariffs contribute to economic instability in the U.S., the demand for products such as food, beverages, home essentials, personal care products, and tobacco remains steady.
Although some companies in the Vanguard Domestic Consumer Staples ETF's portfolio have significant international exposure, this fund may drop if tariffs trigger trade disputes with other nations.
However, the consumer staples sector often performs better than most other sectors during turbulent times. Companies in this sector should have a stronger position to absorb price increases without significantly impacting sales.
2. Vanguard U.S. Financials ETF
The Vanguard U.S. Financials ETF (VFH -0.22%) consists of 404 U.S.-based financial services stocks. Key holdings include JPMorgan Chase, Berkshire Hathaway, Mastercard, Visa, and Bank of America. These five stocks account for approximately 30% of the ETF's portfolio.
Several reasons why this Vanguard ETF could perform relatively well in the event of Trump's proposed tariffs include:
- The banks in the ETF's portfolio may benefit from increased interest income if tariffs lead the Federal Reserve to increase interest rates.
- Insurance stocks owned by the ETF should be relatively unaffected by tariffs.
However, some portions of the Vanguard U.S. Financials ETF's portfolio might be adversely affected by tariffs. For instance, Mastercard and Visa could experience lower cross-border transaction volumes due to tariffs. Should tariffs result in higher interest rates, mortgage real estate investment trusts (REITs) would likely confront higher funding costs for growth.
Additionally, Trump's proposed deregulation could positively impact this Vanguard ETF, particularly for large financial services companies.
3. Vanguard S&P Small-Cap 600 ETF
The Vanguard S&P Small-Cap 600 ETF (VIOO -0.36%) is another ETF that might perform well in a high-tariff scenario. This fund features 604 stocks in the S&P Small-Cap 600 Index, which focuses on smaller U.S. companies. It is highly diversified, with no single stock accounting for more than 0.7% of the total portfolio.
Smaller companies generally have less exposure to global markets, making them less susceptible to the adverse effects of tariffs. Some might even benefit if they can seize market share from international competitors.
Nonetheless, several of the Vanguard S&P Small-Cap 600 ETF's holdings have extensive international operations and could be affected negatively by tariffs. For example, Mueller Industries, the ETF's leading holding, generates approximately one-quarter of its revenue outside the U.S.
However, many small companies in the Vanguard S&P Small-Cap 600 ETF are primarily or even exclusively focused on the U.S. market. Overall, this Vanguard ETF seems likely to perform better than most if Trump's tariffs go into effect.
In the context of potential tariff increases, investing in the Vanguard Domestic Consumer Staples ETF (VDC) could be beneficial due to its focus on essential goods businesses, which typically maintain steady demand even during economic instability. Additionally, considering the Vanguard U.S. Financials ETF (VFH) might benefit from increased interest income or deregulation should tariffs make the Federal Reserve raise interest rates or Trump engage in deregulation efforts in the financial sector.