Vanguard, the biggest fund family of the U.S. in terms of asset under management, is expected to put up a stellar show in the second half of 2017. It offers a variety of investment options from index funds to key actively managed funds. The company helps to create effective investment goals with a suitable asset allocation and low cost portfolio.
While a bulk of Vanguard’s assets are invested in index funds, around 30% of these are focused on actively managed funds. Strong performance by both in the last one year calls for investment in some of the major Vanguard index funds that beat their respective indices.
What Contributed to Vanguard’s Strong Fund Performance?
As per the editor of The Independent Adviser for Vanguard Investors newsletter, Dan Wiener, out of 18 domestic, non-sector, actively managed stock and balanced funds, 14 performed better than the S&P 500 index in the last 15 years. One of the major reasons for this stupendous run is Vanguard’s ability to offer low cost funds consistently.
The company aims to offer low cost mutual funds to its investors. In fact, in 2016, its asset-weighted average expense ratio was 0.12%, significantly lower than the industry's resultant average of 0.62% excluding Vanguard. Investors generally pay around 0.15% of assets every year in a low cost situation, while higher-cost investors may have to bear around 0.60% of assets every year. In this respect, lower-cost investors earn around $70,000 more than higher-cost investors in a 30-year period. (Read More)
Moreover, most of the Vanguard funds are managed outside. Unlike other fund families, Vanguard doesn’t hire its own employees to manage its funds. Instead, the biggest fund family of the world hires managers from outside the company. This makes it easier to replace them in case the manager fails to deliver. This in turn helps to control the overall cost of actively managed Vanguard funds.
Sectors Contributing to Vanguard’s Gains
Vanguard invests in a variety of sectors that are sensitive, cyclical and defensive. From the sensitive sectors, technology is the largest holding. In the cyclical sectors, the fund family invests the maximum in the financial sector, while in defensive sectors it invests heavily in healthcare.
Technology Select Sector SPDR (XLK) climbed 24.7% in the last one year and was the second biggest gainer among the S&P 500 sectors. Also, the technology mutual fund posted a positive one-year return of 30.6%, according to Morningstar. Also, financial and healthcare mutual funds have registered a positive one-year return of 32.2% and 9.3%, respectively.
Buy These 4 Best Performing Vanguard Mutual Funds
Vanguard is one of the world’s largest investment management companies, founded by John C. Bogle in 1975. It manages more than $4.4 trillion in assets and offers nearly 180 domestic funds and 190 funds for foreign markets (as of June 30, 2017).
Here, we have selected four Vanguard mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging first-half returns, which beat the of the respective benchmark indexes during the same period. Also, each of these funds has a low expense ratio and minimum initial investment is within $5000.
Vanguard US Growth Investor (VWUSX - Free Report) invests in large-capitalization stocks of seasoned U.S. companies with records of superior growth. The fund chooses companies with a strong position in their markets and reasonable financial strength.
VWUSX has an annual expense ratio of 0.46%, which is below the category average of 1.14%. The fund returned 15.9% in the first half of 2017, better than Vanguard Growth ETF’s return of 14%.The fund sports a Zacks Mutual Fund Rank #2.
Vanguard Strategic Small-Cap Equity Investor (VSTCX - Free Report) invests the lion’s share of its assets in securities of domestic small cap companies that are expected to be undervalued as well as have strong growth prospects. VSTCX seeks to maintain a risk profile similar to the MSCI US Small Cap 1750 Index.
VSTCX has an annual expense ratio of 0.29%, which is below the category average of 1.25%. The fund returned 2.4% in the first half of 2017, better than iShares Edge MSCI Multifactor USA Small-Cap ETF’s return of 2.3%.The fund sports a Zacks Mutual Fund Rank #2.
Vanguard Value Index Investor (VIVAX - Free Report) invests nearly all its assets in stocks of companies included on the CRSP US Large Cap Value Index. VIVAX seeks to replicate the performance of the index by investing a proportion of its assets in each stock as its weighting in the index.
VIVAX has an annual expense ratio of 0.18%, which is below the category average of 1.10%. The fund returned 3.9% in the first half of 2017, better than Vanguard Value ETF’s return of 3.8%.The fund sports a Zacks Mutual Fund Rank #1.
Vanguard International Explorer Investor (VINEX - Free Report) invests primarily in the equity securities of small-capitalization companies located in countries outside the U.S. that an advisor believes offer the potential for capital appreciation. VINEX seeks growth of capital for the long run. The fund uses multiple investment advisors.
VINEX has an annual expense ratio of 0.41%, which is below the category average of 1.08%. The fund returned 21.8% in the first half of 2017, better than iShares MSCI World Index’s return of 6.2%.The fund sports a Zacks Mutual Fund Rank #1.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>