1 No-Brainer Vanguard Sector ETF to Buy Right Now for Less Than $500

There are nearly 1,000 sector exchange-traded funds (ETFs). These ETFs focus on a particular industry or sector, such as healthcare, financials, or energy. I want to focus on one sector ETF offered by Vanguard Group, which I believe is an excellent choice for investors who have $500 to invest. Here's what you need to know.

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What is the Vanguard Communications Services ETF?

The Vanguard Communications Services ETF (NYSEMKT: VOX) is an industry-specific exchange-traded fund focusing on the communications sector. Specifically, the fund tracks stocks within the U.S. technology services, consumer services, and communications sub-sectors.

While it's true that the communications industry has a reputation for low-growth, income-producing stocks, like AT&T and Verizon Communications, that is changing. The sector has expanded to include social media, internet, and streaming stocks like Meta Platforms, Alphabet, and Netflix.

As a result, the Vanguard Communications Services ETF has a lower dividend payout than one might expect. It sports a forward dividend yield of 0.96%. That means a person who invests $10,000 in this Vanguard fund should expect dividend payments of roughly $100 annually.

As for fees, the fund charges only 0.10% as an expense ratio -- meaning a $10,000 investment will result in annual fees totaling only $10. That's low, particularly for sector ETFs, which often charge higher expense ratios. A low expense ratio is vital as higher fees result in slower compounding gains. That means investors lose more of their returns to investment managers, rather than reaching their investment goals sooner.

Why is the Vanguard Communications Services ETF a buy now?

So, the Vanguard fund offers investors a nice mix of growth and value stocks, sports a modest dividend, and has low fees -- but why is the fund a buy now?

VOX Total Return Level data by YCharts.

As you can see in the chart above, the fund has a lifetime compound annual growth rate (CAGR) of 8.4%. That's less than the return generated by the S&P 500 over the same period (10.8%).

However, that long-term record of underperformance could be changing. Several of the fund's largest holdings, like Netflix and Meta have vastly outperformed the S&P 500 this year. As of this writing, Netflix is up 77% year to date, and Meta is up 68%.

In short, the fund is riding a secular tailwind, as new means of communication (like social media and video streaming) supplant the old (like broadcast and cable television). One of the biggest sales and profit drivers within the communications sector is the growth of digital advertising -- a roughly $740 billion-per-year market that is expected to grow to nearly $1 trillion by 2029.

Long-term investors should consider the Vanguard Communication Services ETF due to its solid long-term performance, low costs, and increasing links to the fast-growing digital advertising market.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jake Lerch has positions in AT&T, Alphabet, Roblox, The Trade Desk, and Walt Disney. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Netflix, Roblox, Take-Two Interactive Software, The Trade Desk, and Walt Disney. The Motley Fool recommends Comcast, Electronic Arts, Live Nation Entertainment, T-Mobile US, and Verizon Communications and recommends the following options: short January 2025 $110 puts on Live Nation Entertainment. The Motley Fool has a disclosure policy.