The Vanguard Group is the second-largest asset management firm in the world, behind only BlackRock, Inc. (NYSE:BLK), but it’s typically first in investors’ minds when it comes to quality low-cost investing. The top Vanguard funds out there include either cost-effective indexing or tried-and-tested active management, and those help the company boast, all told, more than $3 trillion in assets under management.
Low costs aren’t just a key marketing tool — they’re key to Vanguard’s success. See, Vanguard mutual funds and ETFs, by charging low expenses, eliminate one of the main drags to portfolio performance. High fees, whether they go to an active manager or the upkeep of an index fund, ultimately hit shareholders most.
But because shareholders are also Vanguard’s owners, it’s in the company’s best interest to launch mutual funds and ETFs that offer cheap fees and deliver on their promises.
Importantly, Vanguard’s success isn’t just limited to one type of fund. While mutual funds made Vanguard a household name, several of their ETFs are among the best in their class. So today, we’re looking at 10 of the top Vanguard funds available right now — in both mutual fund and ETF form.
In no particular order …
Top Vanguard Funds on the Market: Vanguard Total Stock Market ETF (VTI)
Type: U.S. multi-cap stock
Vanguard created the first index mutual fund, so it’s not surprising that the company is known for its indexing prowess. For sheer simplicity’s sake, the Vanguard Total Stock Market ETF (NYSEARCA:VTI) is its flagship index ETF.
VTI tracks the CRSP US Total Market Index, a measure of the entire U.S. stock market. You don’t get access to every last stock out there, but at 3,606 holdings, it’s one of the widest swaths available. This means you’re owning everything from giants like Apple Inc. (NASDAQ:AAPL) all the way down to small-fries like $40 million Tidewater Inc. (NYSE:TDW).
If you really wanted to only own one fund to get exposure to the U.S. stock market (that’s not a suggestion), VTI very well could be it.
That’s why investors have funneled a staggering $82 billion into VTI, plus hundreds of millions more into sister mutual funds including Vanguard Total Stock Market Index Fund Admiral Shares (MUTF:VTSAX).
And VTI is about as cheap as they come, at just 4 basis points annually, or $4 for every $10,000 invested.
Top Vanguard Funds on the Market: Vanguard Selected Value Fund (VASVX)
Type: Value stock
If you’re going to make an active bet on the market, one of the best places to hunt is smaller stocks. Small- and mid-cap stocks often are ignored by major research houses and analysts, and smart managers can typically earn their keep by finding diamonds in the rough here.
The Vanguard Selected Value Fund (MUTF:VASVX) looks to provide a high total return via both dividends (yield is about 1.8% currently) and capital appreciation from mid-cap stocks. Mid-caps — which blend the best traits of large-cap stocks (like access to capital) and small-cap stocks (growth potential) historically have provided the best risk-adjusted returns.
VAVSX’s management applies fundamental analysis to find those stocks that are out of favor and undervalued. It then makes high-conviction bets on its chosen stocks, with the fund sporting just 120 stocks out of its benchmark’s 600 selections.
At the moment, top holdings include Cardinal Health Inc (NYSE:CAH) and Stanley Black & Decker, Inc. (NYSE:SWK).
The result has been strong 9.15% annual returns since inception in 1996. Minimum investment for VAVSX is $3,000.
Top Vanguard Funds on the Market: Vanguard Dividend Appreciation ETF (VIG)
Type: Dividend growth
The real secret to long-term returns is dividends, yes — but it’s more than just headline yield. You need dividend growth, as steadily rising payouts have been the biggest contributor to overall returns since the 1920s.
The Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) targets dividend growth as a measure of company quality. It tracks the NASDAQ U.S. Dividend Achievers Select Index — a collection of stocks that have increased their dividends for a minimum of 10 consecutive years — excluding real estate investment trusts (REITs) and master limited partnerships (MLPs).
The fund’s 187 holdings are a who’s who of dividend growth stalwarts, such as 3M Co (NYSE:MMM) and Johnson & Johnson (NYSE:JNJ).
VIG’s current yield of 1.9% isn’t high, but it’s designed to grow over time as more of these firms hand ever-larger sums of cash year in and year out. Moreover, those companies that make this list are bastions of financial quality, so this fund also is a great defensive holding.
At $24.5 billion in assets, VIG is a powerful, valuable tool for investors looking to fight inflation and keep the effects of interest-rate hikes at bay.
Top Vanguard Funds on the Market: Vanguard Tax-Managed Balanced Fund (VTMFX)
Type: Balanced (50% stocks/50% municipal bonds)
The Vanguard Tax-Managed Balanced Fund Admiral Shares (MUTF:VTMFX) is an all-in-one shop for investors looking not just for stocks and bonds, but a tax-advantaged blend.
This Vanguard mutual fund aims for a roughly 50/50 blend of stocks and municipal bonds to provide a tax-efficient total return made up of tax-free income from the munis, as well as modest taxable current income from the stocks, and capital gains. This fund only includes stocks that pay qualified dividends that are taxed at the lower rate. Moreover, it hardly ever trades its holdings to take advantage of lower long-term capital gains taxes.
Hence, while a current yield of 1.76% doesn’t sound outstanding, understand that some of that is tax-free, and thus the real number is a bit higher on a tax-equivalent basis.
You could do worse among Vanguard mutual funds. VTMFX has returned 7.53% on average since the 1990s, which isn’t too shabby at all. Just understand that a minimum investment for the Admiral shares is $10,000, which is on the high side.
Top Vanguard Funds on the Market: Vanguard FTSE Emerging Markets ETF (VWO)
Type: Emerging-market stock
Emerging-market stocks are the growth engines of the future, and thus belong in every portfolio. But because of their volatility and increased risk, EM stocks sometimes are better held via mutual funds and ETFs, where investing in a basket of dozens or hundreds such stocks helps defray the potential downside.
At $56 billion in assets, the Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO) is the largest emerging-market stock ETF there is, and it’s also one of the best. VWO invests in more than 4,600 stocks across all capitalizations, domiciled in emerging markets such as Brazil, Russia, India, Taiwan, South Africa and, of course, China. Top holdings at the moment include Tencent Holdings Ltd (OTCMKTS:TCEHY) And China Mobile Ltd. (ADR) (NYSE:CHL).
VWO also invests in Chinese “A-shares” (stocks traded on the mainland), but they’re only available to qualified investors (QFII/RFII) and under certain quotas. FTSE will adjust for the aggregate approved QFII quotas available to foreign investors for VWO until China opens up the market completely.
When that happens, China will be an even more dominant presence in the VWO. Still, in small doses, this is an excellent way to invest on continued growth in many emerging markets.
Top Vanguard Funds on the Market: Vanguard Health Care Fund (VGHCX)
Type: Sector (healthcare)
Vanguard Health Care Fund (MUFT:VGHCX) is one of the top Vanguard funds period, quietly racking up an impressive 16.68% annual return since 1984. In full disclosure, though, much of that came from former fund manager Edward Owens, who guided the $48 billion mutual fund through various market cycles until he retired back in 2012.
However, his successor, Jean Hynes, has advised the fund since 2008, and is making sure VGHCX is being run the same way as before. This means buying healthcare stocks with strong growth profiles and discounts to their intrinsic values. So the hefty returns have persisted and will continue.
Current top holdings in this concentrated 75-stock fund include Bristol-Myers Squibb Co (NYSE:BMY) and Allergan plc (NYSE:AGN).
Top Vanguard Funds on the Market: Vanguard Short-Term Bond ETF (BSV)
Type: Short-term bond
When interest rates rise, bonds fall, and vice versa — that’s the general (but not perfect) relationship bonds have with rates. And the longer-dated your bond is, the more likely it is to fall when rates rise.
Still, bonds provide an important function as ballast in a portfolio, which is why the Vanguard Short-Term Bond ETF (NYSEARCA:BSV) is a great Vanguard ETF to own.
BSV tracks the Bloomberg Barclays U.S. 1-5 Year Government/Credit Float Adjusted Index, which provides exposure to the short-term, investment-grade U.S. bond market. That includes Treasury and corporate bonds for a total of 2,435 different fixed-income securities.
The real benefit in using BSV over other longer-dated bond ETFs is that the fund will have an easier time rolling over its bonds due to the shorter maturity mandate. This lower duration — currently 2.8 years — should help BSV stand its own against rising interest rates and be the rock that bonds are supposed to be.
Short-term bonds do yield less as a result, so you’re looking at just 1.69% of SEC yield at the moment. But you’re not losing much of that to low expenses of just 9 basis points.
Top Vanguard Funds on the Market: Vanguard Strategic Equity Fund (VSEQX)
Type: Mid- and small-cap stock
Vanguard also runs one of the best “quant” shops in the business. That is, using complex algorithms and stores of data to pick stocks.
The Vanguard Strategic Equity Fund (MUTF:VSEQX) is one of the asset manager’s best offerings in this area.
VSEQX focuses on small-cap growth stocks and will use a proprietary stock valuation models to choose the best companies in the MSCI US Small + Mid Cap 2200 Index. This fund searches for factors such as improving fundamentals and attractive valuation. By using computers, the idea is to take the guesswork out of stock picking. If these stocks meet the criteria, VSEQX will buy them.
So far, the quant focus is working. VSEQX has posted 10.79% annual returns since inception in 1995. Considering that timeline includes two major recessions that decimated small-cap stocks, that says good things about this Vanguard mutual fund.
Top Vanguard Funds on the Market: Vanguard Windsor Fund Investor Shares (VWNDX)
Type: Large-cap value
Aside from their indexing prowess, Vanguard mutual funds are also known for value investing skills. And their top fund in this regard could be the Vanguard Windsor Fund Investor Shares (MUTF:VWNDX).
Started in the 1950s, Windsor is one of the oldest mutual funds still in existence. But time hasn’t left it behind. Over long stretches of time, value beats growth, and that has helped VWNDX produce 11.38% annual returns since inception.
VWNDX searches the U.S. large-cap world for stocks trading for big discounts to their values, though it also places a heavy emphasis on dividends. And despite having $18.7 billion in assets, Windsor holds a concentrated portfolio of just 140 stocks.
This great long term return makes the fund an ideal core holding for those saving for retirement or other long-term need. While expenses are on the high end for a Vanguard fund, it’s worth it given the fund’s long-term track record of success.
Top Vanguard Funds on the Market: Vanguard Total International Bond ETF (BNDX)
Type: International bond
Investors are woefully underexposed to international bonds. That’s a shame given the benefits — typically high yields, not to mention diversification.
Use Vanguard ETFs to add international debt to your portfolio by purchasing the Vanguard Total International Bond ETF (NASDAQ:BNDX), which holds more than 4,400 investment-grade international bonds. This includes sovereign/government, government agency, corporate and securitized non-U.S. investment grade fixed-income investments. The ETF invests in debt issued in currencies other than the U.S. dollar.
The twist is that BNDX will then hedge against the U.S. dollar to protect against uncertainty in exchange rates. Investors are able to focus on strict performance rather than the effects of currency.
Since inception in 2013, BNDX has posted a 3.7% annual return, including a 0.79% yield. That’s OK. This fund isn’t designed to knock it out of the park, but to provide exposure to a diversified asset class that may churn out performance when more overweighted ones (like U.S. stocks) do not.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.