Is Vanguard’s hottest sector ETF worth buying?

If you enjoy investing in individual stocks and ETFs, you’re probably familiar with Vanguard, one of the largest asset managers and investment advisors in the world.

Vanguard offers ETFs with just 0.1% annual fees in each of 11 sectors in S&P500. So far this year Vanguard communications services ETF(NYSEMKT: VOX) has been the top performer, up an impressive 13.6% from recent prices.

Here’s why the fund is doing so well and why you should buy it now.

Paradigm shifts in the communications sector

Of all the stock market sectors, communications has probably been the most disrupted over the last few decades. The widespread adoption and increased functionality of mobile phones have increased the importance of telephone operators and Internet providers such as Verizon, AT&TAND TMobile.

There has been a shift from traditional cable TV to streaming Netflix worth almost twice as much Comcast. And companies like it Year have changed the television industry by emphasizing the integration of various streaming and multimedia applications instead of channels or stations.

Cloud advertising has evolved sales office an extremely important marketing resource.

However, the biggest evolution has been the move from print media to digital and social media; from newspaper to smartphone; from tons of physical documentation, faxes and localized IT departments to centralized data centers and cloud infrastructure.

These topics have disrupted and shaken up the communications sector, offering opportunities for growth.

VOX data by YCharts

Big growth at a good price

Alphabet(NASDAQ: GOOGL)(NASDAQ:GOOG) AND Metaplatforms(NASDAQ: META) they make up a staggering 45% of the Vanguard Communication Services ETF. But it wasn’t always like this.

ETFs rebalance their weights to adjust for changes in market capitalization. For example, assume that Company A and Company B have an equal weight of 4%. If Company A increases by 50% and Company B decreases by 50%, then Company A’s weight increases to 6% while Company B’s weight decreases to only 2%.

The rebalancing has made the communications sector more top-loaded, so Alphabet and Meta’s platforms can really move the sector, while smaller companies that were more valuable can double down and still only gain 1 or 2 percentage points.

What makes the communications sector so attractive is that it combines younger, fast-growing companies with traditional, stalwarts, many of which pay large dividends. You may be surprised to learn that the Vanguard Communications Services ETF has a price-to-earnings ratio of 22.1 and a yield of 1%. This is significantly lower than the P/E ratio of 40.4 Vanguard Information Technology ETF.

Despite hovering around all-time highs, Alphabet and Meta are inexpensive – both trade below 24 forward P/E ratios. That makes them two of the cheapest “Magnificent Seven” stocks based on this metric.

GOOGL PE Ratio (Forward) data by YCharts

Combine the reasonable valuation of two top growth stocks with the valuation of wireless carriers, cable and satellite operators and other telecommunications companies, and you have a sector that combines growth, value and income like no other.

Balanced ETF to buy now

Since the start of 2023, the Vanguard Communications Services ETF has risen a staggering 62.6% – driven largely by massive gains by Alphabet, Meta Platforms, and Netflix. Such a large gain in a relatively short period of time could set the stage for short-term volatility or even a sell-off in the ETF. However, the valuation remains inexpensive and earnings growth is excellent.

Trends such as artificial intelligence, virtual reality, augmented reality and the metaworld are in their infancy, but are likely to impact the entire communications sector in the coming decades.

Overall, the Vanguard Communications Services ETF remains the easiest way to invest in the next evolution of information and media sharing and consumption.

Is it worth investing $1,000 in the Vanguard World Fund – Vanguard Communication Services ETF now?

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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the companies mentioned. The Motley Fool ranks and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, Roku, Tesla, The Trade Desk and Vanguard Real Estate ETFs. The Motley Fool recommends Comcast, T-Mobile US and Verizon Communications and the following options: long calls to Microsoft in January 2026 for $395 and short calls to Microsoft in January 2026 for $405. The Motley Fool has a disclosure policy.