Passive investing is hugely popular, and 2015 is shaping up to be a transitional year for capital markets, which may bring significant uncertainty and volatility. Therefore, the coming year could be a great time to take a close look at the best Vanguard funds.
Vanguard passed the lofty milestone of $3 trillion in assets under management this summer, and it has accumulated a record $185 billion in net new assets in the U.S. alone since the start of the year, as reported by Financial Times.
Vanguard obviously isn’t just for “Bogleheads” and indexers anymore. Even if you believe 2015 will be a stock picker’s year, Vanguard has some of the best actively-managed funds to choose from in the mutual fund universe.
Momentum and timing are pointing toward a big year for Vanguard. Here are 3 of the best Vanguard funds to own in 2015.
Best Vanguard Funds for 2015 — Vanguard 500 Index (VFINX)
Click to EnlargeThe U.S. economy is arguably the strongest in the world and it looks to continue the forward momentum well into 2015. Also, with risk appetites decreasing as the bull market enters the late phase, demand will likely rise for large-cap stocks.
The Vanguard 500 Index (VFINX) will give you exactly what you need with a high quality, low-cost index fund that will provide a pure play to the large-cap U.S. stock market.
VFINX is on pace to finish its fifth consecutive year outperforming its large blend category peers. Long-term returns also reflect this passive dominance with the 3-year, 5-year and 10-year performance ranks besting more than two-thirds of large blend funds.
Vanguard achieves its top-notch performance by its masterful indexing techniques and low expenses. The tracking error for VFINX keeps it amazingly close the the S&P 500 Index benchmark, and the cheap expense ratio of 0.17%, or just $17 annually for every $10,000 invested is makes it one of the best Vanguard funds out there.
You can buy shares of VFINX with an initial purchase minimum of $3,000.
Best Vanguard Funds for 2015 — Vanguard Energy (VGENX)
While energy stocks have entered a bit of an oil slick lately, the sector should be hitting the value radar for long-term investors. Oil prices have tumbled to 5-year lows, dragging down energy stock valuations to multi-year lows, as reported by Bloomberg.
An advantage for VGENX may be its exposure to large value energy names, such as the domestic Exxon Mobil Corporation (XOM) and Chevron Corp (CVX). VGENX is also weathering the recent slippery slope of falling oil prices with a 3-month fall of 20% compared to a 23% drop for the category.
Something else that won’t hurt energy stocks in 2015 is the incoming GOP-controlled Congress, as I noted in my recent story, 3 Sector Funds to Buy for a Republican Congress.
Rounding out Vanguard Energy’s attributes is its low 0.38% expense ratio. You can get into VGENX with an initial purchase minimum of $3,000.
Best Vanguard Funds for 2015 — Vanguard Ultra-Short-Term Bond
One of the best Vanguard funds for 2015 may the newest addition to the family: the Vanguard Ultra-Short-Term Bond, which is scheduled to be available to investors early in the year.
The timing of inception is not a mistake. Now that interest rates are finally set to begin rising, the bond funds with the shortest maturities stand the best chance of minimizing the potential price declines. When interest rates are rising, bond prices generally are falling, and the longer the duration of a bond, the greater its sensitivity to interest rates — and thus the deeper the decline in price.
Therefore, assuming interest rates do finally begin their new ascension in 2015, the bond funds with the shortest durations will fall in price the least. Furthermore, low expense ratios become increasingly important with narrow margins between the best and worst of bond funds in 2015. Vanguard’s mastery of low expenses should make the Ultra-Short-Term Bond Fund one of the best Vanguard funds for bond investors.
With that said, investors should be cautioned that ultra-short-term bond funds like this one are intended to be a part of a diversified fixed-income portfolio, not just a one-fund bond approach.
As with most Vanguard mutual funds, there will be two share classes of the new Ultra-Short-Term Bond fund — Investor shares and Admiral shares. The Investor shares have an estimated expense ratio of 0.2% and will have a minimum initial investment amount of $3,000, while the Admiral Shares have estimated expenses of 0.12% and a minimum initial purchase of $50,000.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.