http://funds-newsletter.com
Copyright 2019 Tom Madell, PhD, Publisher
July 2019. Published July 7, 2019. Corrected: July 8

Why I Prefer Vanguard Funds

By Tom Madell

Readers of my Newsletters will have observed that I prefer Vanguard funds. The reasons: low cost, good customer service, readable reports, and most of all, excellent performance as you will see below.

I realize that not everyone may have access to Vanguard funds if their only investments are through their workplace retirement plans. Therefore, they may feel there is no way to adopt my suggestions as to recommended funds. What to do in such instances remains unclear although I have a few ideas.

If your investing is restricted to just your employer's retirement plan(s), you might consider what it will take to possibly begin investing outside those plans. If you have any spare cash, you could start by setting up one or more investments in a separate account, picking any funds you choose, including from Vanguard.

Once you are ready to retire, you could roll over retirement assets into other fund groups. For example, when I retired I arranged for my 401(k) assets to be rolled over, tax-free, from Fidelity into a Vanguard IRA.

Short of these options, you may want to do a little research to see which funds you currently do have available that have been doing roughly equal or better than my recommended funds. (See "How My Specific Recommended Funds Have Been Doing" below.) Such comparisons should look for funds that are in a similar category as my recommendations. For example, it would not make sense to compare a domestic Large Growth fund to an International fund because category returns will normally differ widely across different categories, not because one fund in a given category is inferior, but because there are different conditions affecting returns, say in Europe, than in the US.

A tool for doing such comparisons is readily accessed through performance data on each fund at morningstar.com. Another valuable resource can be found at https://www.portfoliovisualizer.com/backtest-portfolio which is particularly useful for examining the returns of multiple funds in a portfolio all at the same time.

If you determine that your funds are trailing the returns of my recommendations (which, however, certainly won't always be the case), you can either just accept these differences, or, use Morningstar's "Fund Category Performance" table at news.morningstar.com/fund-category-returns/ to find better performing funds. (Click on any given fund category name to get a list of all funds in that category and their comparative performances.) (Note: While good past performance doesn't guarantee good future performance, it is one of the best indicators investors have, especially if out/under-performance is considered over 10 years or more.

Although it would be impossible to compare the performance of Vanguard funds to other fund companies in this single article, I have created the table below which was drawn from a list of the 250 biggest of all funds based on total assets, selecting those Vanguard funds included in the list. (Identical funds of different fund classes and balanced funds consisting of both stocks and bonds are excluded.) The periods of comparison are 1 and 5 years.

Biggest Vanguard Stock Funds

Fund (Fund Symbol) Fund
Category		 1 Yr Ret.
for Fund 		1 Yr Avr. Ret.
for Category 		5 Yr Ret.
for Fund 		5 Yr Avr. Ret.
for Category
-Total Stock Mkt Idx Adm (VTSAX)
-500 Index Admiral (VFIAX)
-Div Growth Inv (VDIGX) (closed)
- Tax-Managed Capital App Adm (VTCLX)

   Large Blend

        8.99 
      10.38 
      19.04
      10.11 		      8.22
      10.17  
      10.68  
      11.30
      10.59 		     8.67
- Capital Opp Adm (VHCAX) (closed)

   Mid-Cap Growth

       4.91       10.47
      11.72  
     9.90
- Emerging Mkts Stock Idx Adm (VEMAX)

   Emerging Mkts

       3.22        2.58
      2.26  
     1.80
- Equity-Income Adm (VEIRX)
- Value Index Adm (VVIAX)
- Windsor II Adm (VWNAX)
- Windsor Adm (VWNEX)

   Large Value

       9.73 
      9.87 
      7.07
      1.82 		      5.83
      9.01  
      9.26
      7.07
      6.25 		     6.85
- Explorer Adm (VEXRX)
- Small Cap Growth Index Adm (VSGAX)

   Small Cap Growth

       7.09 
      6.79		       3.33
      10.01  
       8.98 		     9.25
- Extended Market Index Adm (VEXAX)
- Mid Cap Index Adm (VIMAX)

   Mid-Cap Blend

       2.04 
      7.83		       2.63
      7.80  
      8.82 		     5.94
- Growth Index Adm (VIGAX)
- PRIMECAP Adm (VPMAX) (closed)
- US Growth Adm (VWUAX)
- PRIMECAP Core Inv (VPCCX)

   Large Growth

       10.44 
      6.19 
      11.72
      6.99 		     10.26
      11.98  
      12.06
      13.51
      10.98 		     11.30
- Health Care Adm (VGHAX)

   Health Care

       7.36        6.19
       8.33  
      9.28
- International Growth Adm (VWILX)

   Foreign Large Gr. 

      -0.40 
      3.39
       6.78  
      4.12
- Real Estate Index Admiral (VGSLX)

   Real Estate 

      12.21 
     10.33
       7.69  
      7.11
- Small Cap Index Adm (VSMAX)

   Small Cap Blend 

      2.26 
     -3.89
       7.72  
      5.70
- Small Cap Value Index Adm (VSIAX)

   Small Cap Value 

      -1.56 
     -8.11
       6.61  
      3.56
- Total Intl Stock Index Adm (VTIAX)
- Developed Markets Index Adm VTMGX

   Foreign Large Blend

       0.64 
     -0.02		       0.52
      2.33  
      2.53 		     1.97
- International Value Inv (VTRIX)

   Foreign Large Value 

      -0.39  
     -1.10
       1.27  
      0.08
Note: 5 Yr return is annualized; results thru 6/30/19

While the above table includes a large amount of data, the key is how many of the biggest Vanguard funds come out ahead of the average returns for a given fund category. Whenever a Vanguard fund has exceeded its category average, the return is shown in bold or dark text.

Out of the 26 funds, 24 exceeded the category average for either 1 or 5 years, or both. The average outperformance has usually been at least one or two percent per year, with some funds considerably more than that.

Biggest Vanguard Bond Funds

Fund (Fund Symbol) Fund
Category		 1 Yr Ret.
for Fund 		1 Yr Avr. Ret.
for Category 		5 Yr Ret.
for Fund 		5 Yr Avr. Ret.
for Category
-CA Interm-Term Tax-Exempt Adm (VCADX)
-Interm-Term Tx-Ex Adm (VWIUX)

   Muni Intermediate

       6.09 
      6.44 
       5.94
      3.25  
      3.26  
     2.99
-High-Yield Tax-Exempt Adm (VWALX)
-Long-Term Tax-Exempt Adm (VWLUX)

   Muni Long

       7.50 
      7.28
      6.43
      4.87  
      4.34    		     3.68
-Ltd-Term Tx-Ex Adm (VMLUX)
-Short-Term Tx-Ex Adm (VWSUX)

   Muni Short

       3.88 
      2.34
      2.92
      1.68   
      1.09   		     1.17
- High-Yield Corporate Adm (VWEAX)

   High Yield 

       8.98 
      6.22
       4.80  
      3.51
- Interm-Term Bond Index Adm (VBILX)
- Interm-Term Investment-Gr Adm (VFIDX)
- Total Bond Market Index Adm (VBTLX)

   Interm Bond

       9.99 
      9.62
      7.85		       7.21
      3.44  
      3.64
      2.89 		     2.53
- Long-Term Investment-Grade Adm (VWETX)

   Long-Term Bond 

       14.77 
      12.83
      6.19   
      5.39
- Short-Term Bond Index Adm (VBIRX)
- Short-Term Investment-Grade Adm (VFSUX)

   Short Term Bond

       5.22 
      5.48 		       4.15
      1.74  
      2.26 		      1.58
- GNMA Adm (VFIJX)

   Interm Govt

       5.74        5.99
       2.48   
      1.94
- Vanguard Inflation-Protected Adm (VAIPX)

   Inflation. 

      4.74  
      4.06
       1.69   
      1.21
- Total Intl Bd Idx Adm (VTABX)

   Internat Bnd 

      7.81  
      5.41
       4.31   
      0.63
Note: 5 Yr return is annualized; results thru 6/30/19

As with the stock funds, almost all Vanguard bond funds exceeded their identical category averages. In this case, this is true for 15 out of 16 funds. The average outperformance appears to be about 1% per year.

The results shown in the above two tables, including both index and managed funds, are unlikely to be equaled or beaten by any large fund group. So it's easy then to see why I prefer Vanguard funds over most others.

How My Specific Recommended Funds Have Been Doing

Note: My specific recommendations are what I consider to be "the best of the best," and are drawn from several fund groups, unlike in the tables above, although the great majority are still from Vanguard.

The last 6 months have been an amazing period for fund investments. Just imagine: since the first of the year, many US stock fund investments have grown in the vicinity of 20%! Many international investments, while not as torrid, have grown in the range of about 12 to 14%. And bond funds have been averaging about a percent a month, or close to 6%. In such an environment, it has been hard to be dissatisfied with the results no matter which funds you owned.

Since the beginning of the year, I have periodically been posting the results for my funds in which I have my biggest positions. These listings replace my Model Portfolios which at times had many of the same funds.

As points of comparison for the stock fund results, I have chosen two of the more difficult funds to beat: a "total" index fund from Vanguard for US stocks and one for non-US US stocks. For bond funds, the comparison fund was the Vanguard Total Bond Market Index (VBMFX).

In the tables below, I show the shorter-term and and longer-term results for each fund and highlight in bold those of these recommended funds that have done as well as or better than the appropriate comparison fund with results through June 30, 2019.

Note: I show the returns for Vanguard "investor" shares. Very recently, however, Vanguard has converted index funds into "Admiral" shares and closed the "investor" shares. The returns for Admiral shares are always slightly higher because they have lower expense ratios.

Recommended Stock Funds

Fund
Fund
Category
YTD
Return
1 Year
Return
5 Year
Ann. Return
10 Year
Ann. Return
15 Year
Ann. Return

-Vanguard Small-Cap Index Fund (NAESX)
Small-Cap Blend
     19.46  
     2.14
     7.59
     14.64
     9.34

-Vanguard Extended Market Idx (VEXMX)
Mid-Cap Blend
     19.43
     1.92
     7.67
     14.50
     9.42

-Vanguard Small Cap Growth Idx (VISGX)
Small Cap Growth
     24.00
     6.66
     8.85
     15.28
     9.94

-Vanguard 500 Index (VFINX)
Large Blend
     18.47
     10.27
     10.56
     14.54
     8.67

-Vanguard Equity Income (VEIPX)
Large Value
     14.84
     9.64
     8.91
     14.18
     9.03

-Vanguard Windsor II (VWNFX)
Large Value
     16.23
     7.07
     7.07
     12.51
     7.69

-Vanguard Energy (VGENX)
Sector
     13.34
    -11.68
     -5.34
     3.53
     6.67

-Vanguard Growth Idx (VIGRX)
Large Cap Growth
     22.36
     10.31
     11.84
     15.52
     9.52

-Vanguard Pacific Index (VPACX)
International
     9.89
     -2.67
     3.84
     6.65
     5.05

-Vanguard International Growth (VWIGX)
International
     18.55
     -0.53
     6.64
     9.95
     7.80

-Vanguard Europe Idx (VEURX)
International
     15.40
     1.07
     1.38
     7.08
     5.43

-Vanguard Emerging Markets Idx (VEIEX)
International
     12.05
     3.32
     2.14
     5.40
     8.18

-Tweedy, Browne Global Value (TBGVX)
Global
     12.18
     4.44
     4.04
     9.44
     6.80

Comparison Stock Funds

Fund
Fund
Category
YTD
Return
1 Year
Return
5 Year
Ann. Return
10 Year
Ann. Return
15 Year
Ann. Return

-Vanguard Total Stock Mkt Idx Inv (VTSMX)
Large Blend
     18.62  
     8.87  
     10.05
     14.58
     8.88

-Vanguard Developed Markets Idx Adm (VTMGX)  
Foreign Large Blend  
     13.76
    -0.02
      2.53
     7.05
     5.53

Recommended Bond Funds

Fund
Fund
Category
YTD
Return
1 Year
Return
5 Year
Ann. Return
10 Year
Ann. Return
15 Year
Ann. Return

-Vanguard California Interm-Term Tax-Exempt (VCAIX) See Note 1.
Muni Intermediate
     4.67 
    6.09
     3.25
     4.54
     4.02

-PIMCO Total Return Instl (PTTRX)
Intermediate-Term
     6.08
    7.66
     3.02
     4.67
     5.24

-Vanguard Total Bond Market Index (VBMFX) See Note 2.
Intermediate-Term
     6.04
    7.75
     2.78
     3.71
     4.18

-Vanguard High Yield (VWEHX)
High Yield
  10.89
    8.87
     4.70
     8.25
     6.43

-Vanguard Short-Term Investment-Grade (VFSTX)
Short-Term
     4.07
    5.37
     2.16
     3.05
     3.24

-PIMCO International Bond Admin (PFRAX)
International
     5.67
    6.28
     4.81
     6.61
     5.81

-Vanguard Total International Bond Index (VTIBX)
International
     6.01
     7.74 
     4.28
     NA
     NA

Note: After-tax returns are typically higher for Muni funds than taxable funds, so in a taxable account, VCAIX would have beaten VBMFX over every period for an investor in the 24% Federal tax bracket; try to choose a fund with bonds from your particular state for additional after-tax outperformance.

Comments

In most cases, regardless of the time period examined, my recommended stock fund returns exceeded the returns of the hard to beat comparison broad index funds about half of the time. While managed stock funds at times came out on top, most of the funds that beat the broad index funds were also index funds, but more focused such as smaller cap funds or growth funds.

For bond funds, almost all recommended funds beat the broad bond market comparison fund, regardless of whether the fund was a managed fund or not.

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