1 Underrated Vanguard ETF That Smart Investors Are Watching

Investing in an exchange-traded fund (ETF) that can benefit from interest rate cuts can be a great move to make right now, as more cuts look to be on the horizon. According to projections from JPMorgan Chase, there could be another rate cut in December followed by more next year -- it expects one per quarter.

One ETF that could soar on those developments is the Vanguard Real Estate Index Fund (NYSEMKT: VNQ). Although it has generated double-digit gains this year, it could be due for a much bigger rally in the months ahead.

The Vanguard fund invests in many types of REITs

Real estate investment trusts (REITs) offer investors a great way to gain exposure to real estate. They collect recurring rent payments from tenants and can benefit from rising valuations in real estate. As interest rates come down, that can reduce costs for tenants and lessen the risk of defaults. At the same time, lower rates can result in a hotter housing market, sending real estate valuations higher. It sets up a situation where REITs can potentially make for ideal investments to hold in your portfolio heading into next year.

The Vanguard Real Estate Index Fund gives you a position in a wide variety of REITs, so you don't have to pick whether you want to focus on hotels, healthcare, offices, or other types of REITS. Instead, by just investing in the ETF, you'll have exposure to all those types of REITs. Retail, healthcare, and telecom are its largest REITs, but there are also many others in its portfolio.

The ETF also pays a high yield

Another reason you'll want to consider investing in the fund is its yield. At 3.8%, the ETF pays you more than three times what you'd collect with the average stock in the S&P 500. However, if you wait too long, that yield could shrink since it's a function of not just the dividend you receive but the price you pay for the investment. And if the ETF rises in value, which it might as more rate cuts take place, that yield will come down.

Investing in a high-yielding ETF is a way for investors to provide their portfolios with some valuable, recurring cash flow. Plus, it can pad your overall returns. In the past five years, the ETF's share price has risen by just 6%. However, when you include dividend payments, its total returns are around 28%. While these returns may not look all that great, the future may look brighter for the fund and REITs as a whole as interest rates come down even more.

VNQ data by YCharts

A solid buy heading into 2025?

Whether you want a good dividend to collect or just a potentially underrated investment to hold in your portfolio heading into next year, the Vanguard Real Estate ETF can be a solid option to consider. It has a low expense ratio of 0.13%, which won't put a big dent in your overall returns.

While many stocks are trading at high valuations and could be due for corrections, there hasn't been nearly as much bullishness and excitement around REITs in recent years, and that could change soon. These types of investments haven't done well amid inflation, and as interest rate have been rising, but under more favorable conditions, they could generate a lot more interest.

Investing in this ETF before REITs start to take off may set you up to earn some great returns while also locking in a high dividend, which can be a solid source of income for years to come.

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JPMorgan Chase is an advertising partner of Motley Fool Money. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.