Positioning for 2026: 2 Vanguard ETFs to Own and 1 to Avoid

As 2026 approaches, investors face a complex macroeconomic landscape shaped by persistent inflation, a higher-for-longer interest rate environment, and evolving sector dynamics. Vanguard's latest economic and market outlook underscores the importance of strategic positioning to balance growth potential with risk mitigation. By aligning portfolios with asset classes that offer superior risk-adjusted returns and avoiding overvalued sectors, investors can navigate the uncertainties of the coming year. Below, we analyze two Vanguard ETFs to prioritize and one to tread cautiously around, based on macroeconomic tailwinds and market fundamentals.

1. Vanguard Value ETF (VTV): A Hedge Against Overvalued Growth

According to Vanguard's 2026 outlook, U.S. value equities are a compelling opportunity amid concerns about the overvaluation of growth stocks, particularly in the technology sector. The Vanguard Value ETF (VTV), which tracks the CRSP US Large Cap Value Index, focuses on U.S. companies with low price-to-book ratios and strong earnings relative to their stock prices. This strategy positions VTV to benefit from a potential rotation away from speculative growth stocks toward more fundamentally sound equities.

The rationale for VTV is rooted in Vanguard's assessment that AI-driven investment, while transformative, is unlikely to meet the sky-high expectations for large-cap tech firms. These companies already trade at elevated valuations, leaving limited room for upside if earnings fall short of projections. In contrast, value stocks historically perform better in environments of rising interest rates and economic uncertainty, as their lower valuations and stronger cash flows provide a buffer against volatility.

2. Vanguard FTSE Developed Markets ETF (VEA): Diversification in a Global Slowdown

According to Vanguard's 2026 forecast, developed economies outside the U.S. offer attractive risk-adjusted returns. The Vanguard FTSE Developed Markets ETF (VEA) provides broad exposure to stocks in regions such as Europe, Japan, and emerging developed markets, excluding the U.S. and Canada. This diversification is critical as global economic growth moderates, with the eurozone and China expected to expand at subpar but stable rates.

VEA's appeal lies in its ability to hedge against domestic risks while capturing growth in markets where valuations are more attractive. For instance, European equities, which have lagged U.S. counterparts in recent years, may benefit from a rebound in energy prices and a more favorable interest rate environment. Additionally, VEA's inclusion of high-quality bonds and equities aligns with Vanguard's emphasis on fixed income as a stabilizing force in volatile markets.

1 to Avoid: Vanguard Information Technology ETF (VGT)

While the technology sector has been a dominant force in recent years, Vanguard's 2026 outlook warns of a potential correction in overvalued growth stocks. The Vanguard Information Technology ETF (VGT), which tracks U.S. tech companies like Apple, Microsoft, and Nvidia, is particularly exposed to this risk. These firms have driven much of the market's gains but now face headwinds, including high earnings expectations and the disruptive entry of new competitors in AI and quantum computing.

According to Vanguard's Capital Markets Model, the risk-adjusted returns of growth-oriented sectors will lag behind value and international equities over the next five to ten years. This is exacerbated by the Federal Reserve's limited ability to cut rates below the neutral rate of 3.5%, which reduces the discount rate used to value future earnings-a key driver of growth stock performance. Investors in VGT may find themselves overexposed to a sector that could underperform if macroeconomic conditions deteriorate or earnings growth stalls.

Conclusion: Balancing Growth and Stability

The 2026 investment landscape demands a disciplined approach to asset allocation. By prioritizing VTV and VEA, investors can capitalize on undervalued U.S. equities and diversified global markets while avoiding the pitfalls of overleveraged tech exposure. As Vanguard emphasizes, a focus on risk-adjusted returns and strategic diversification remains the cornerstone of resilient portfolio construction in an era of macroeconomic uncertainty.