by Jeff Reeves | May 9, 2014 1:59 pm
Vanguard funds are known for two things: Low cost and simplicity.
As the godfather of the index fund movement, John C. Bogle created the Vanguard 500 Index Fund (VFINX) in 1975 as the first index fund in history. The idea was simple: If you can’t beat the 500 biggest stocks on the market … join them!
Now, Vanguard has grown to the largest mutual fund organization in the world with assets of more than $2 trillion, with a host of low-cost offerings to help investors save money as well as make money.
But one challenge that Vanguard has created thanks to its massive success is that its current suite of mutual fund products spans multiple asset classes, geographic regions and investment styles. There are so many options that it can be difficult to choose.
So what are the best Vanguard funds right now, for this market?
Based both on the unique benefits of these products and the unique situation in the current market, here are five Vanguard funds to buy now:
Click to Enlarge Assets: $8.9 billion
Expenses: 0.44%, or $4.40 on every $1,000 you invest
YTD Performance: +1.6%
10-Year Performance: An average of +10.4% per year.
Vanguard Selected Value (VASVX) chases a select group of stocks that the managers believe are undervalued and have big potential. In a year like 2013, when fast-growing tech stocks are all the rage, a value strategy might not pay off … but over the long-term, having an investment that buys good stocks on their worst days is a very powerful strategy.
Unlike some fashionable funds that briefly have a hot hand, Vanguard Selected Value has had the same team in place since 2005 — with the most senior manager, James Barrow, at the helm since 1999. This experience has led to impressive long-term returns of more than 10% annually.
So what are Mr. Barrow and his team buying right now? Well, top holdings at Selected Value as of this moment include chipmaker Micron (MU), which is up an impressive 22% since Jan. 1, and healthcare services midcap Omnicare (OCR), which is up about 9% in the same period.
Read more about the Vanguard Selected Value fund here.
Click to Enlarge Assets: $20.5 billion
Expenses: 0.29%, or $2.90 on every $1,000 you invest
YTD Performance: +1.9%
10-Year Performance: An average of +9.2% per year.
If you’re looking for long-term investments that generate income, Vanguard Dividend Growth (VDIGX) is a great place to park some of your cash.
VDIGX focuses on stocks with strong fundamentals, and thus the ability to grow both their dividends and share prices over the long term. Not only does this add up to good performance, it also adds up to rock-solid stability; consider that the Vanguard Dividend Growth fund lost “only” 27% or so in 2008 as the market crashed, vs. a 37% decline for the broader S&P 500 Index.
Top holdings right now include UPS (UPS), Microsoft (MSFT) and McDonald’s (MCD); These dividend stocks, respectively, command yields of 2.7%, 2.8% and 3.2%.
Manager Donald Kilbride is an old hand at the fund, managing Vanguard Dividend Growth since 2006, so you can be sure that the long-term performance of this fund will continue uninterrupted with a steady hand at the tiller.
Read more about the Vanguard Dividend Growth Fund here.
Click to Enlarge Assets: $37.1 billion
Expenses: 0.35%, or $3.50 on every $1,000 you invest
YTD Performance: +2%
10-Year Performance: An average of +11.2% per year.
Want to play low-risk U.S. equity but don’t want the vanilla approach of simply buying the entire S&P 500? Well, the Vanguard Health Care Fund (VGHCX) is your answer.
In addition to healthcare being a growth business thanks to Obamacare unlocking new “customers” with the means to pay and the aging baby boomer demographic, it’s also important to note that healthcare is a recession-proof sector. After all, you will cut back on a lot of other spending categories before you stop buying treatments that keep you healthy or improve the quality of your life.
That’s where VGHCX comes in. This Vanguard mutual fund promises to invest at least 80% of its assets in healthcare companies, and frequently it’s fully invested in the sector. Current top holdings include pharmaceutical giant Merck (MRK), insurer UnitedHealth Group (UNH) and medical device company McKesson (MCK) among others.
Read more about the Vanguard Health Care Fund here.
Click to Enlarge Assets: $48.7 billion
Expenses: 0.22%, or $2.20 on every $1,000 you invest
YTD Performance: +2.1%
10-Year Performance: An average of +7.3% per year.
The Vanguard Total International Stock Index Fund (VGTSX) is one of the 25 largest mutual funds that exist, with a massive $48.7 billion in assets under management.
But you don’t have to pay a bundle to join this popular club, because expenses are dirt cheap at just 0.22% of your investments.
That’s because Vanguard is using its familiar index fun formula to keep costs low and to get out of the way. After all, if you want international exposure broadly, why would you overthink it by hiring a bunch of high-priced managers to go globetrotting? Instead, Vanguard has benchmarked this fund to the FTSE Global All Cap ex US Index. In a nutshell, that means it invests in large and small companies anywhere in the world … so long as the investment isn’t in the U.S.
Top individual holdings right now include Swiss consumer giant Nestle (NSRGY), U.K. financial giant HSBC (HBC) and Japanese automaker Toyota (TM), among others. However, no single holding is worth more than 1.13% of the portfolio as of March 31.
As for allocation by region, as of Q1 the fund was 47.5% in Europe, 27.3% in developed Asia and 17.6% in emerging markets with a smattering of other holdings elsewhere around the globe.
Read more about the Vanguard Total International Stock Index Funds here.
Assets: $28 billion
Expenses: 0.17%, or $1.70 on every $1,000 you invest
YTD Performance: +1.7%
10-Year Performance: An average of +7.6% per year.
What would the list of best Vanguard funds be without the good old Vanguard 500 Index Fund (VFINX) that started it all?
As the name implies, the 500 index fund faithfully tracks the Standard & Poor’s index of 500 large and respected U.S. blue chips. It’s perhaps the easiest and cheapest way to “buy the market” with an expense ratio of just 0.17%. That means a mere $1.70 in expenses for every $1,000 you invest.
Unsurprisingly, the top holdings are names investors know and love — Apple (AAPL), Exxon (XOM), Johnson & Johnson (JNJ) and other megacap U.S. companies.
There is a host of research out there that indicates passive, index-fund investing via a large-cap stock fund like the Vanguard 500 Index Fund is the most powerful and low-risk way to invest over the long-term.
So whether or not you’re the kind of trader that worries about sectors or emerging markets or short-term trends, have confidence in the VFINX fund as the bedrock of your portfolio for the long haul.
Read more about the Vanguard 500 Index Fund here.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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