The list of Vanguard sector funds is relatively short but each of the funds provide focused coverage to specialty areas of the market at a low cost to investors.
Sector funds can be smart additions to a portfolio because they can serve the dual purpose of increasing potential for higher returns and for diversification.
For example, two of the sectors covered by Vanguard Funds, energy and health, have outperformed the broader market indices like the S&P 500 over long holding periods, such as 15 years. At the same time, these sectors do not perform in lock step with the market, thereby offering portfolio diversification.
Vanguard Sector Funds
Vanguard Energy (MUTF:VGENX): Vanguard’s VGENX is one of the top mutual funds in the energy sector category. Low expenses and smart active management have historically combined to produce long-term returns well ahead of category peers. The fund holds about 140 stocks in the energy sector, most of which are large-cap, U.S. and non-U.S. companies. That includes the likes of Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX). The expenses for VGENX are 0.37%, or $37 annually on every $10,000 invested, and the minimum initial investment is $3,000.
Vanguard Health Care (MUTF:VGHCX): With a track record of over 30 years and a return since inception of over 16%, VGHCX is one of the oldest and best sector funds available on the market. The portfolio holds about 75 stocks in the health care industry, including Bristol-Myers Squibb Co. (NYSE:BMY) and Allergan plc (NYSE:AGN). The portfolio is broadly diversified across the spectrum of health stocks, including sub-sectors of pharmaceuticals, biotechnology, healthcare equipment and more. The expense ratio for VGHCX is low at 0.36% and the minimum initial investment is $3,000.
Vanguard Precious Metals and Mining (MUTF:VGPMX): Investors looking for exposure to gold and other precious metals are smart to consider VGPMX. This fund is not a direct investment in gold, but it does hold stocks of U.S. and non-U.S. companies involved in mining and exploration of gold and other precious metals, including Franco-Nevada Corp (NYSE:FNV) and Barrick Gold Corp (USA) (NYSE:ABX). The expense ratio for VGPMX is 0.35% and the minimum initial investment is $3,000.
Vanguard REIT Index (MUTF:VGSIX): Vanguard’s VGSIX buys real estate investment trusts, also known as REITs, which are companies that purchase real estate properties, such as buildings and hotels. Investors that buy REIT funds like VGSIX are usually looking for above-average dividends or they may also be looking for a diversification tool to add to a portfolio. This fund includes the likes of Simon Property Group Inc (NYSE:SPG) and Public Storage (NYSE:PSA). The expense ratio for VGSIX is 0.26% and the minimum initial investment is $3,000.
All of the these Vanguard sector funds also have an Admiral share class, which charges a lower expense ratio but a higher minimum initial investment of $10,000.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm. Under no circumstances does this information represent a recommendation to buy or sell securities.
