The fears in the lead-up to 2024 proved relatively unfounded as the U.S. markets recorded exceptional returns despite the theoretically deadly combination of high inflation and high interest rates.
As it turned out in February, the hopes arising from lowering inflation and interest rate cuts that permeated the leadup to 2025 might be equally ill-founded as America recorded a concerning uptick in its CPI prints.
Despite the Fed remaining adamant that it is making headway in its struggle against surging cost increases and President Donald Trump advocating for further rate cuts, Finbold decided to examine the best defensive Vanguard exchange-traded funds (ETFs) for investors desiring to remain on the safe side.
Picks for you
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) is a strong defensive pick as an index fund tracking and containing a large number of major dividend-paying stocks.
Though its yield – averaging at about 2.7% – might not appear particularly impressive, it is worth noting that it is more than twice as large as the average yield of the S&P 500 and that, paired with its historically strong performance in high-inflation environments, should help investors preserve their wealth under adverse circumstances.
Looking at its historical performance, it quickly becomes evident that VYM weathered the storm that started in 2021 admirably. Between the start of 2021 and September 2024 – the time the Fed began cutting rates – the ETF rallied 39.18%.
Furthermore, the fund has also been performing well since as it is, at $134.03, up 5.05% in 2025.
Vanguard Utilities ETF (VPU)
Though utility companies aren’t the first choice for many investors, they come with numerous benefits, including guaranteed demand and decent overall dividends. Vanguard Utilities ETF (VPU) might offer the best way for traders to gain exposure to the sector without over strategizing.
While VPU’s overall attractiveness somewhat declined during 2024 as the fund recorded stellar returns, it, nonetheless, remains an attractive investment.
The companies contained within are likely to benefit from the vast infrastructure they have already undertaken to enter the green energy game and from the more relaxed conditions offered by the new Republican administration.
Simultaneously, the risk of them suffering amidst increased interest rates is lower than in most high-inflation environments due to the President’s apparent favoring of cutting the borrowing rates further.
Looking at VPU’s history, it managed an overall 20% rise during the inflation crisis and has been performing reasonably well since. Indeed, Vanguard Utilities ETF is 4.40% in the green year-to-date (YTD) and is changing hands at $170.61.
Still, it is worth noting that the fund experienced substantial volatility in recent years and was badly mauled in the leadup to 2024, indicating that, in case of runaway inflation or other unexpected developments, it could lead to significant losses, even if they are likely to be only temporary.
Featured image via Shutterstock
