by Tom Taulli | March 18, 2011 4:54 am
In the mutual fund industry, Vanguard founder Jack Bogle is a legend. After college, he got a job at Wellington Management Company and quickly rose up the ranks, becoming the company’s chairman. However, he was eventually fired because of a bad merger. But this turned out to be fortuitous since he started the mutual fund giant Vanguard in 1974.
His laser-like focus at Vanguard was on the interests on investors. To this end, he developed low-cost mutual funds that focused on indexing. Hey, why should investors spend high amounts on fees when many portfolio managers underperform the market?
Now, thanks to this legacy, Vanguard is a mutual fund investing powerhouse. There are $1.4 trillion in assets, with 160 U.S. funds and 50 international funds. And while many are strong, there are some that are standouts above the rest. Let’s take a look:
Started in the early 1980s, the Vanguard International Growth Fund (MUTF: VWIGX[1]) now has $18.8 billion in assets. The portfolio is diversified across the world, with 11.58% in the Americas, 53.81% in Europe and 34.61% in Asia. There is also 21.11% in emerging markets.
The Vanguard fund is composed of a variety of best-of-breed international money managers, from firms like Schroder Investment Management, Baillie Gifford and M&G Investment Management. The general approach is to focus on high quality companies with strong growth prospects.
As should be no surprise, the expense ratio is only 0.49% and the turnover is 44%. Top holdings now include Baidu (NASDAQ: BIDU[2]), Petrobras (NYSE: PBR[3]) and SAP AG (NYSE: SAP[4]).
The MSCI U.S. Small Cap 1750 Index tracks the performance of a diverse set of small capitalization stocks in the US. It is widely followed and a good barometer of the category.
If you want to invest based on this index, then a good mutual fund choice is the Vanguard Small Cap Growth Index Fund (MUTF: VSGIX[5]), which has $8.8 billion in assets. True, there has been volatility — which is to be expected. Although, the index has a good amount of mid-cap stocks, which helps with the swings.
For the past three years, the average annual return was 10.33%. Top holdings include JDS Uniphase (NASDAQ: JDSU[6]), Informatica (NASDAQ: INFA[7]) and Brigham Exploration Company (NASDAQ: BEXP[8]).
The U.S. spends about 16% of the gross domestic product on healthcare. In fact, it is projected to grow to 19.5% by 2017.
Yes, the result is that there will likely be continued growth in the healthcare sector. And a beneficiary should be the
Vanguard Health Care (MUTF: VGHCX[9]) mutual fund. It invests in a broad array of healthcare operators — like pharma firms, medical supply operators and research companies. There is also investments in other countries. The top holdings include Merck (NYSE: MRK[10]), Forest Laboratories (NYSE: FRX[11]), Pfizer (NYSE: PFE[12]), UnitedHealth Group (NYSE: UNH[13]) and McKesson (NYSE: MCK[14]).
With $20.4 billion in assets, the Vanguard fund has an expense ratio of 0.36% and a turnover of a mere 6%.
It’s amazing that the Vanguard Wellington (MUTF: VWELX[15]) is still around. The fund got its start just before the 1929 crash and the onset of the Great Depression. But sometimes tough times can be a good thing — creating a firm that is built to last.
Well, this is certainly the case with the Vanguard Wellington fund. It now has about $56.8 billion under management. Actually, over the past ten years, the fund has posted an average annual return of 6.38%.
The Vanguard Wellington takes an old-school, conservative approach to investments. Just look at the top holdings: AT&T (T), ExxonMobil (NYSE: XOM[16]), Chevron (NYSE: CVX[17]), IBM (NYSE: IBM[18]) and even the U.S. Treasury Bill.
Keep in mind that during the 2008 financial crisis, the Vanguard Wellington fund lost about 22.3%. Compared to many other funds, it was certainly a good performance and shows that the fund knows how to handle the downside.
As of this writing, Tom Taulli did not own a position in any of the stocks named here.
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