There’s a reason why more than 20 million investors have placed $4 trillion dollars into various Vanguard funds. The investment manager’s low-cost mantra isn’t just for show, it’s a way of life. And as such, Vanguard mutual funds and exchange-traded funds simply perform better than many of their peers. Those low costs help 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.
What’s even better is that these low costs aren’t just on the firm’s index ETFs. There are plenty of active Vanguard funds that feature rock-bottom and Lipper leading expense ratios as well. Low costs aren’t just a marketing tool. It’s the main reason for the firm’s success.
In the end, Vanguard funds — index or active — belong in your portfolio. And with that, here are the top nine Vanguard funds to buy today.
Great Vanguard Funds to Buy Today #1: Vanguard Total World Stock ETF (VT)
The lowest cost Vanguard funds tend to be index funds that own large swaths of stocks or bonds. And you can’t get any larger swath of holdings than the Vanguard Total World Stock ETF (NYSEARCA:VT). As its name implies, VT allows investors to own the world with just one ticker.
Seriously, every stock. Like all of them.
VT’s underlying index- the FTSE Global All Cap Index– tracks large-, mid- and small-cap stocks located in every developed and emerging market nation on the planet. Brazil? It’s in there. The United States? VT has it. France? Plenty of exposure. All in all, the index fund covers roughly 8,000 stocks across 47 different countries. All in all, the ETF covers more than 98% of the global investable market capitalization. It’s as broad as you can get in an index fund
That broadness makes it an ideal single holding for core stock exposure. Especially for those investors who don’t have a ton of money to allocate towards individual or regional index funds. If you need stocks, buying VT gets them all.
And as a Vanguard fund, VT is dirt cheap to own. Expenses run at just 0.11%, or just $11 per $10,000 invested. That helps on the returns front as well. VT has managed to post 10.96% average annual returns over the last five years.
Great Vanguard Funds to Buy Today #2: Vanguard Strategic Equity Fund (VSEQX)
While Vanguard created the concept of indexing, it also runs one of the best “anti-indexing” quant shops in the business. Using complex algorithms and data to pick stocks, the Vanguard Strategic Equity Fund (VSEQX) is one of their best.
VSEQX focuses on the opportunities in mid- and small-cap U.S. stocks by using a proprietary stock valuation model to choose the best companies in the MSCI US Small + Mid Cap 2200 Index. The Vanguard mutual 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.
And all of that sophistication and computer modeling has worked in VSEQX’s favor. Since its inception in 1995, VSEQX has managed to return nearly 11% annually.
Additionally, letting the computers run the show results in low expenses for investors. VSEQX costs a dirt cheap 0.18%.
Great Vanguard Funds to Buy Today #3: Vanguard Morgan Growth Fund (VMRAX)
One of the oldest Vanguard funds happens to be one of its best. The Vanguard Morgan Growth Fund (VMRAX) made its debut back in 1968 and has managed to produce a 6.73% annual return since that time.
VMRAX focuses its attention on stocks of large- and mid-cap US companies. Fund managers look for companies whose revenues, earnings, or both, are expected to grow more quickly than the average company. It’s a classic growth fund to the core. The kicker is that VMRAX uses four different sub-advisors to run the fun. This helps blend different styles -both fundamental and quantitative- into one fund.
When looking at it benchmark the Russell 3000 Growth Index- VMRAX is vastly overweight tech stocks and consumer discretionary sectors, while under-weighting consumer staples, industrials, and materials sectors. This has helped the fund have great medium term returns and rekindled some of the funds past mojo.
All in all, when it comes to Vanguard funds, Morgan Growth is a solid choice.
Great Vanguard Funds to Buy Today #4: Vanguard FTSE Emerging Markets ETF (VWO)
While they come with hefty dose of volatility, emerging markets provide plenty of growth for portfolios. And in order to fight that volatility, buying them in bulk via a low-cost index fund makes a ton of sense. And when it comes to broad index exposure to emerging markets, the Vanguard FTSE Emerging Markets ETF (NYSE:Arca:VWO) is really the only game in town.
VWO — and its mutual fund twin VEIEX — now has more than $85 billion dollars in assets. And it’s easy to see why.
The ETF invests in more than 4,650 stocks across all capitalizations, domiciled in emerging markets such as Brazil, Russia, India, Taiwan, South Africa and, of course, China. Incidentally, investors get exposure to not only Chinese red-chips like China Mobile Ltd. (ADR) (NYSE:CHL), but elusive Chinese A-Shares. This provides investors an inroad into the real China, and VWO is one of the fee broad ways to do that without becoming a qualified investor (QFII/RFII).
With a rock-bottom expense ratio of just 0.14%, VWO is the total package when it comes to emerging markets. It’s no surprise that the ETF is one best Vanguard funds around.
Great Vanguard Funds to Buy Today #5: Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
With interest rates being in the basement, low-cost Vanguard funds are the key to getting more yield out of an investment. And when you add tax-free status, it gets even better. Luckily, Vanguard runs one of the best municipal bond shops on the planet. The Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) is the cream of the crop. VWITX invests in the sweet spot of bonds and will own high-quality municipal bonds with durations of about five to six years.
This provides plenty of yield and some rising interest rate protection. Currently, the fund is paying out 1.62%. That’s equivalent to after-tax yield of 2.49% for someone in the highest tax bracket.
What’s great is, as an actively managed fund, VWITX can shift its exposure a tad to prevent major hiccups when rates rise- as in today’s environment. This helps avoid major losses and keeps the fund humming along.
And when you add in the Vanguard funds low expenses of 0.19%, you have a recipe for plenty of tax-free income.
Great Vanguard Funds to Buy Today #6: Vanguard Health Care Fund (VGHCX)
Let’s call a spade, a spade. The Vanguard Health Care Fund (VGHCX) has been one of the best performing mutual funds — Vanguard or otherwise — of all time. Since 1984, the fund has racked up an impressive 16.68% annual return. While former lead manager Edward Owens retired back in 2012, the current manager Jean Hynes worked under Owens. As a result, her style of management is virtually identical.
VGGCX’s focus remains on buying healthcare stocks with strong growth profiles and discounts to their intrinsic values. The $47 billion fund currently holds just 80 stocks. Top holdings include medical device maker Medtronic plc (NYSE:MDT) and pharma-giant Eli Lilly & Co. (NYSE:LLY).
And it looks like Hynes is carving her own impressive return profile at the fund. The last five years has seen the mutual fund record 18%+ average annual returns. Helping that along has been VGHCX continually dropping expense ratio. Today, the fund only charges 0.37%. Which isn’t too bad considering its return profile.
In the end, VGHCX is the one Vanguard fund you must buy today.
Great Vanguard Funds to Buy Today #7: Vanguard Dividend Appreciation ETF (VIG)
We all know that dividends are the secret to real long term success in the markets. But the key isn’t to just focus on a high headline yield. It actually has more to do with the growth of a firms payout, than what it is handing back as cash.
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- which is a collection of stocks that have increased their dividends for a minimum of 10 consecutive years. The index kicks out real estate investment trusts (REITs) and master limited partnerships (MLPs) as they more pass-through entities. Their structures are different.
VIG’s current yield of 1.94% 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 $30.8 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.
Great Vanguard Funds to Buy Today #8: Wellesley Income Fund (VWIAX)
For those investors looking for income, Vanguard funds can be a great choice. And in fact, they even have some wonderful all in one options. Take the Wellesley Income Fund (VWIAX) for example. VWIAX is considered a balanced fund, meaning it owns stocks and bonds. In this case a 60%–65% bond, 35%–40% stock spilt. As its name implies, Wellesley is designed to produce income and be basically the only fund an investor would need.
On the bond side, that means Intermediate duration, investment-grade fixed income securities. We’re talking treasury and corporate bonds. With yields scarce, the emphasis has been more on corporate bonds lately. As for stocks, managers will focus on large-company value stocks that pay above-average dividends. Moreover, there is an emphasis on income growth. Typically, VWIAX will hold no more than 100 stocks.
The combination produces a pretty decent 3.09% yield. It’s also produced some decent returns and has shown plenty of stability in times of trouble. VWIAX has managed to return about 7% since its inception in 2001. Not bad at all for a balanced fund.
And the expenses are bad either. For VWIAX, it only costs 0.15% in annual fees. However, that comes with a $50,000 minimum investment. For lower investment minimums, expenses are higher- albeit still pretty low even by Vanguard standards.
Great Vanguard Funds to Buy Today #9: Vanguard REIT Index Fund (VNQ)
When it comes to great sector Vanguard funds, the Vanguard REIT Index Fund (NYSEARCA:VNQ) is one of the best. Real estate investment trusts (REITs) have been one of the markets bets performing asset classes of all time. REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. They get all sorts of tax breaks for doing so.
As a result, the combination of high and rising yields as well as capital appreciation has made the sector a hot deb of total returns.
At $64 billion in assets under management, VNQ is by far the biggest REIT ETF in town. The problem is, that it’s perhaps too big. Because of its size and limitations on which stocks it can own, Vanguard is switching its index. Going forward, VNQ will now include real estate services and development companies in addition to REITs. Moreover, it’ll be able to plenty of specialized REIT muscle. This includes REITs like timber management firm Weyerhaeuser (NYSE:WY) and cellphone operator American Tower (NYSE:AMT).
While the changing of the index could affect VNQ’s yield, its underlying mission will be the same. And for investors, that will still make it as good as gold for portfolios.
As of this writing, Aaron Levitt was long WY stock.