VNQ Vanguard Real Estate ETF

Important information about access to shareholder reports

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.

You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

A Note From Our Chairman

Tim Buckley

Chairman and Chief Executive Officer

Dear Shareholder,

These are challenging times. The markets plummet one day and bounce back the next as investors process the uncertainty surrounding the coronavirus outbreak.

At Vanguard, we tell investors to “stay the course” in good times and bad. This means focusing on your investment goals, keeping a long-term perspective, being balanced across and diversified within asset classes, and limiting cost.

Vanguard investors have proven time and again that they know how to stay calm in a market downturn—an attribute that has served them well. But for those who are weathering their first bout of market volatility or could just use a friendly reminder, let me offer three points.

First, we stand by our counsel—“stay the course.”

Don’t be tempted to time the markets. It’s a losing strategy. An investment plan established during calmer times should not be abandoned in the midst of a market downturn. Although having exposure to different asset classes does not eliminate the risk of loss, we believe investors should let the potential benefits of diversification play out.

Second, whether you’re new to investing or a seasoned financial advisor, don’t feel that you need to go it alone. Our mission is to help you succeed, so reach out if we can be of help.

Our websites are constantly refreshed with our latest thinking on the markets and economy. And our experts offer practical advice on how to put this perspective to work in your portfolios.

And, finally, thank you.

Thank you for entrusting us with your financial success. It’s a tremendous responsibility that we take very seriously. No matter the market conditions, we look forward to partnering with you and helping you reach your investment goals.

Sincerely,

Mortimer J. Buckley

Chairman and Chief Executive Officer

March 3, 2020

Your Fund’s Performance at a Glance

·   For the 12 months ended January 31, 2020, Vanguard Energy Fund returned –6.55% for Investor Shares and –6.50% for Admiral Shares. It held up a bit better than its benchmark, which returned –6.98%.

·   The broad stock market, as measured by the Standard & Poor’s 500 Index, returned 21.68% for the fiscal year thanks to a stronger-than-expected U.S. economy fueled by the Federal Reserve’s three interest rate cuts in 2019. An initial trade deal calling for the United States to reduce tariffs and China to buy large quantities of U.S. farm products also helped.

·   Declining oil prices led to negative returns for the fund. Its oil and gas exploration and production holdings significantly hurt performance, although positions in utilities companies boosted results.

·   For the ten years ended January 31, 2020, the fund posted an average annual return of 1.18% for Investor Shares, just below that of its benchmark index.

Advisors’ Report

For the 12 months ended January 31, 2020, Vanguard Energy Fund returned –6.55% for Investor Shares and –6.50% for Admiral Shares. It held up slightly better than its benchmark, the MSCI All Country World Energy Index, which returned –6.98%. Your fund is managed by two advisors, a strategy that enhances fund diversification by providing exposure to distinct yet complementary investment approaches. It’s not uncommon for different advisors to have different views about individual securities or the broader investment environment.

The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the accompanying table. The advisors also have provided a discussion of the investment environment that existed during the period and of how their portfolio positioning reflects this assessment. These reports were prepared on February 19, 2020.

Wellington Management Company LLP

Portfolio Manager:

G. Thomas Levering,

Senior Managing Director,

Global Industry Analyst

Investment strategy

Wellington Management’s portion of the fund emphasizes long-term total-return opportunities through diversified energy equity exposure. We believe that the future of energy will be increasingly carbon-free, and we therefore take a comprehensive approach to defining evolving opportunities.

We invest not only in the multiple subindustries included in energy benchmarks (e.g., integrated oil, exploration and production, refining and marketing, and energy equipment and services), but also in non-benchmark renewable power and electricity networks. The portion of the fund that we manage is therefore representative of the energy sector as a whole, and the weightings of underlying subindustries reflect the relative attractiveness of the stocks within them.

Investment environment

Global equities performed strongly over the 12 months. Stocks in the global energy sector underperformed the broader market (+16.67%), as measured by the MSCI All Country World Index.

Following a particularly volatile end to 2018, energy markets stabilized in the first quarter of 2019. Dovish comments from the Federal Reserve and productive trade talks between the U.S. and China helped to ease concerns about global demand. At the end of the second quarter, shrinking U.S. crude oil stockpiles and rising political tensions between the U.S. and Iran propelled crude oil to its biggest move since January.

Early in the third quarter, it appeared that this trend would continue as Russia and Saudi Arabia struck a deal at the G20 to extend previously agreed-upon output

cuts through the remainder of the year. However, initial gains were cut short as fears of a global economic slowdown weighed on the energy demand outlook.

Energy equities rebounded in the fourth quarter as improving 2020 oil supply/demand estimates and positive developments on the U.S.-China trade front lent broad support to oil prices. Spot WTI crude oil finished the year at $61, up 13% for the quarter and well above the $45 it started at in 2019.

Optimism about fundamentals increased heading into the new year, but energy equities experienced a difficult first month of 2020 as markets grappled with uncertainty about the magnitude and duration of the coronavirus outbreak.

Our successes and shortfalls

Security selection detracted from our portion of the portfolio’s performance, particularly among upstream producers and equipment and services. This was partially offset by strong selection in transportation and distribution and integrated oils. Overall, subindustry allocation decisions contributed to performance, led by an overweight to energy utilities.

On an individual security basis, the largest contributors over the period included out-of-benchmark allocations to Sempra Energy (utilities) and Iberdrola (utilities). We believe Iberdrola is well-positioned to gain share as adoption of renewables grows worldwide.

Ovintiv (previously known as Encana), a North American producer with operations in natural gas and crude oil, detracted from returns. The company has undergone a transformation over the past few years with the goal of returning more free cash flow to shareholders. But its corporate history and historical trading patterns as a highly levered gas company seem to be overshadowing its move to a more balanced business model.

We initiated a position in Gazprom, a Russia-based natural gas company that focuses on the extraction, production, transport, and sale of natural gas. During the second quarter, shares hit a ten-year high after the company announced plans to increase its dividend payout ratio to 50% of net profit, beating consensus expectations.

The fund’s positioning

Portfolio positioning was fairly consistent over the year, particularly at the subindustry level. It has historically been heavily concentrated in the largest segments of the MSCI All Country World Energy benchmark—the integrated oils and upstream producers. Recently, we have strategically reduced exposure to these areas in order to add to select energy utility companies.

As the future of energy becomes increasingly carbon-free, we expect that the risk-reward of investing in purely fossil fuel equities will become relatively less attractive. Fossil fuel demand growth will continue to wane and anti-carbon policy

pressure will rise. As a result, we are increasingly focused on finding attractive opportunities in all forms of energy and all segments of the energy value chain.

Vanguard Quantitative Equity Group

Portfolio Managers:

James P. Stetler

Binbin Guo, Principal, Head of

Alpha Equity Investments

The investment environment

In general, energy stocks struggled both on an absolute basis and relative to the broader stock market. The MSCI All Country World Energy Index returned –6.98% for the period, while the broader MSCI All Country World Index returned 16.67%.

Results were held back by increases in U.S. petroleum production, which put downward pressure on crude oil prices. The rise in production likely limited the effect on prices of several key events that occurred just before or during the fiscal year. These included the attack on two Saudi oil tankers, production cut announcements from OPEC, and U.S. sanctions on Venezuela and Iran that limited crude oil exports from those countries.

On January 6, oil prices reached $70.73 a barrel amid fears that the U.S. airstrike that killed Iran’s top military commander might trigger a retaliation and disrupt global energy supplies. They then dropped significantly as the coronavirus sparked fears of an economic slowdown.

In 2019, natural gas spot prices averaged $2.57 per million British thermal units (MMBtu), about 60 cents per MMBtu lower than in 2018 and the lowest annual average price since 2016. This drop supported higher consumption—particularly in the electric generation sector—and more natural gas exports. Continued growth in domestic natural gas production also supported lower prices throughout the fund’s fiscal year.

Investment objective and strategy

It’s important to understand how our overall performance is affected by the macroeconomic factors we’ve described. However, our approach to investing focuses on specific fundamentals— not on technical analysis of stock price movements—so that we can identify stocks with characteristics that we believe will outperform over the long run.

To do this, we use a strict quantitative process that focuses on several fundamental factors. We believe that attractive stocks exhibit four key themes: (1) high quality—healthy balance sheets and consistent cash-flow generation; (2) sound management decisions— investment policies that favor internal over external funding; (3) strong market sentiment—market confirmation of our view; and (4) reasonable valuation— avoidance of overpriced stocks. Using

these results, we construct our portfolio with the goals of maximizing expected return and minimizing exposure to risks that our research indicates do not improve returns.

Our successes and shortfalls

For the 12 months, our sentiment and management decisions boosted relative performance, but our valuation and quality models did not perform as expected.

Our selections in integrated oil and gas held up better than those in the benchmark, while our oil and gas refining and marketing holdings were by far the biggest detractors from relative performance.

We also benefited from our positions in Russia and, to a lesser extent, Brazil and Thailand. Our holdings in India, the United States, and Canada detracted the most.

Our most successful overweights included those to Gazprom and Rosneft Oil Company. We also benefited from an underweight to Concho Resources. Our results were restrained by overweighted positions in EQT and HollyFrontier and underweights to Anadarko Petroleum and Phillips 66.

About Your Fund’s Expenses

As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.

A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

The accompanying table illustrates your fund’s costs in two ways:

·   Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

·   Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.32% for Investor Shares and 0.24% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/365).

Energy Fund

Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

Cumulative Performance: January 31, 2010, Through January 31, 2020

Initial Investment of $10,000

				Average Annual Total Returns
				Periods Ended January 31, 2020
										Final Value
				One		Five		Ten		of a $10,000
				Year		Years		Years		Investment
		Energy Fund Investor Shares		-6.55%		-0.80%		1.18%		$11,245
		Spliced Energy Index		-6.98		-0.12		1.19		11,254
		Dow Jones U.S. Total Stock Market Float Adjusted Index		20.37		11.79		13.80		36,436

Spliced Energy Index: S&P 500 Index through November 30, 2000; S&P Energy Sector Index through May 31, 2010; MSCI All Country World Energy Index thereafter.

See Financial Highlights for dividend and capital gains information.

Energy Fund

The table reflects the fund’s equity exposure, based on its investments in stocks and stock index futures. Any holdings in short-term reserves are excluded. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Energy Fund

At January 31, 2020, net assets consisted of:

Energy Fund

See accompanying Notes, which are an integral part of the Financial Statements.

Energy Fund