3 Vanguard Funds That Deliver Market-Beating Returns


When you think of index funds, the first ones that probably come to mind are Vanguard funds and the S&P 500 index.

3 Vanguard Funds That Are Beating the MarketThe investing premise that Vanguard founder, John C. Bogle, had in mind when he created the first index fund in 1975, was that most investors (and many professional money managers) do not beat the market over the long run.

Bogle therefore put forth Vanguard’s flagship passive investment vehicle, which would become known as Vanguard 500 (VFINX).

But 40 years ago, Bogle himself may have not predicted that his Vanguard lineup would evolve to include other index funds that would outperform the S&P.

In this spirit, I give you three Vanguard funds that are not only beating the market in 2015, but have done so, on average, for the past 10 years:

Vanguard Funds Beating the S&P 500: Vanguard Mid-Cap Index (VIMSX)

Expenses: 0.23%
Minimum Initial Investment: $3,000

If you want to beat the S&P 500, a good tactic is to invest passively in mid-cap stocks, as the Vanguard Mid-Cap Index (VIMSX) does.

In 2015, returns for large-cap stocks, especially those of multinational firms, are being dragged down by a strong U.S. dollar. Meanwhile, small- and mid-cap stocks are leading the way in performance.

Mid-cap stocks generally have the fortune of growing profits faster than the average mega-cap firm, but without the excessive market risk of small-cap stocks. Therefore, mid-caps can capture upside better than large caps in a bull market, but can avoid the worst of the downside better than small-cap stocks in a bear market.

Year-to-date, VIMSX has a gain of 3,2%, compared to 1.2% on the S&P. VIMSX also outshines the S&P 500 for one-, three-, five-, 10- and 15-year annualized returns. The most stunning outperformance is the 15-year return of 8.8% for VIMSX, which is double that of 4.4% for the S&P 500.

Top holdings include BioMarin Pharmaceutical (BMRN), O’Reilly Automotive (ORLY) and Cerner (CERN).

Vanguard Funds Beating the S&P 500: Vanguard Small-Cap Growth Index (VISGX)

Expenses: 0.23%
Minimum Initial Investment: $3,000

If you want a solid low-cost fund that is more aggressive than large- and mid-cap stock index funds, Vanguard Small Cap Growth Index (VISGX) is a good choice.

Like mid-cap stocks, small caps are leading the broad market averages in 2015, because they can take advantage of late-cycle growth and avoid the profit-dragging strength in the U.S. dollar.

Small-cap stocks have historically outperformed large caps over time. But the biggest factor supporting the performance for VISGX, especially for long-term returns, is the low expense ratio of 0.23%. Actively managed small-cap stock funds tend to get dragged down by expense ratios typically in the range of 1.5% and higher.

Year-to-date, VISGX is crushing the S&P 500 with a 4.9% gain, and the 10-year annualized return for VISGX is 9.3%, significantly ahead of the S&P 500’s 7.6% return.

Its top holdings include WhiteWave Foods (WWAV), Acuity Brands (AYI) and United Therapeutics (UTHR).

Vanguard Funds Beating the S&P 500: Vanguard Growth Index (VIGRX)

Expenses: 0.23%
Minimum Initial Investment: $3,000

If you want low-cost exposure to large-cap growth stocks, Vanguard Growth Index (VIGRX) is among the best you can buy.

The simple reason VIGRX beats the S&P 500 Index is because growth stocks — such as VIGRX holdings Apple (AAPL), Facebook (FB) and Disney (DIS) — tend to outperform value stocks in the long run.

As for short-term outperformance, growth stocks tend to lead the market in the late phase of the business cycle, which is where the U.S. economy is headed now, if not already in it.

The 10-year annualized return of 8.7% for VIGRX edges out the S&P 500, which stands at 7.6% for the same period. VIGRX has an impressive YTD gain of 4.5%, while the S&P 500 is up just 1.2%.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/vanguard-funds-index-vimsx-visgx-vigrx/.

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