Vanguard's Top Holdings: A Brief Analysis

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Includes: AAPL, BAC, BRK.B, C, COP, CSCO, CVX, GE, GOOG, HPQ, IBM, INTC, JNJ, JPM, KO, MCD, MRK, MSFT, ORCL, PEP, PFE, PG, PM, QCOM, SLB, T, VZ, WFC, WMT, XOM
by: Efsinvestment

The Vanguard Group is one of the largest institutional investors in the equity market. The company offers several mutual funds, exchange-traded funds, retirement services and other financial products to its customers. Vanguard is also one of the leaders in financial innovation. Its founder, and former chairman, John C. Bogle is accredited with the creation of the first retail index fund. Vanguard's mutual fund structure has a different structure than that of JP Morgan (NYSE:JPM), Citibank (NYSE:C), and Morgan Stanley (NYSE:MS). They are owned by clients. The funds share the same costs pool among each other, effectively reducing the marketing and management costs. According to the latest filings submitted to I-Metrix Edgar Online, Vanguard's top holdings are as follows:

Company Name

Ticker

Sector

Value

YTD Return

Profit / Loss

GENERAL ELECTRIC

GE

Conglomerates

$7,598

8.76%

$612

PROCTER & GAMBLE

PG

Consumer G.

$6,479

-4.67%

-$317

COCA COLA CO

KO

Consumer G.

$5,493

-0.12%

-$7

PHILIP MORRIS

PM

Consumer G.

$4,375

12.41%

$483

PEPSICO

PEP

Consumer G.

$4,000

-1.31%

-$53

EXXON MOBIL

XOM

Energy

$15,729

14.96%

$2,047

CHEVRON

CVX

Energy

$8,343

17.90%

$1,267

SCHLUMBERGER

SLB

Energy

$4,468

4.35%

$186

CONOCOPHILLIPS

COP

Energy

$4,238

18.87%

$673

JPMORGAN CHASE

JPM

Financial

$6,422

8.24%

$489

WELLS FARGO

WFC

Financial

$5,742

3.23%

$180

BANK OF AMERICA

BAC

Financial

$4,811

0.08%

$4

CITIGROUP INC

C

Financial

$4,603

-5.71%

-$279

BERKSHIRE

BRK.B

Financial

$3,665

6.40%

$220

JOHNSON & JOHNSON

JNJ

Healthcare

$6,084

-3.78%

-$239

PFIZER INC

PFE

Healthcare

$5,869

17.43%

$871

MERCK & CO

MRK

Healthcare

$3,627

-8.56%

-$339

WAL MART

WMT

Services

$4,194

-2.24%

-$96

MCDONALDS

MCD

Services

$3,175

-1.17%

-$38

APPLE

AAPL

Technology

$11,634

8.98%

$959

IBM

IBM

Technology

$7,630

10.95%

$753

MICROSOFT

MSFT

Technology

$7,398

-7.68%

-$615

AT&T

T

Technology

$6,120

-0.38%

-$23

GOOGLE

GOOG

Technology

$5,381

-2.40%

-$132

ORACLE

ORCL

Technology

$4,685

4.45%

$200

INTEL

INTC

Technology

$4,137

-2.30%

-$97

VERIZON

VZ

Technology

$3,846

5.58%

$203

HEWLETT PACKARD

HPQ

Technology

$3,595

1.21%

$43

CISCO

CSCO

Technology

$3,584

-14.6%

-$613

QUALCOMM

QCOM

Technology

$3,173

6.93%

$206

TOTAL/AVERAGE

$170,094

3.19%

$6,545

Value Weighted

3.85%

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The total current value of top 30 holdings is $170.09 billion. The year-to-date value-weighted return of the portfolio is 3.85%. The value-weighted average yield is 3.85%, underperforming S&P 500 (NYSEARCA:SPY) [4.61%]. Vanguard's energy holdings performed the best, followed by conglomerates and financial stocks. Conocophillips, Chevron, and Exxon Mobile returned fantastic capital gains: ConocoPhillips gained 18.87%, followed by Chevron [17.90%], and Exxon Mobil [14.96%]. The outstanding performance of these stocks boosted Vanguard's portfolio by $673 million, $1,267 million, and $2,047 million, respectively. However, the ytd performance of Vanguard's holdings were disappointing. The sectoral breakdown of the top holdings can be visualized as such:

Vanguard's portfolio managers made their highest investment in energy stocks followed by consumer goods, financial, and healthcare stocks. Procter & Gamble, a safe dividend aristocrat, is the largest consumer holding in the portfolio. The disappointing performance of P&G stocks cost Vanguard $317 million. Interestingly, the performance of financial stocks were differentiated. JPMorgan shares soared up by 8.24% ,whereas Citigroup stocks went down by -5.71%. That was unfortunate for Vanguard, since the portfolio managers increased their Citigroup holdings by 21%. That wrong move cost Vanguard's portfolio an additional $60 million. The following graph shows the year-to-date profit/loss performance:


The ytd performance analysis shows that Vanguard's portfolio managers best bet was on energy stocks, followed by conglomerates. If it was not for the outstanding performance of oil companies, the returns would be much lower. The only conglomerate, General Electric provided a generous return of 8.76%. Pfizer, a top dividend pharmaceutical, also returned a whopping 17.43%, boosting the portfolio's performance by $871 million. Merck was the worst performer among healthcare stocks costing $339 million to Vanguard's fund holders.

The mediocre performance of Vanguard's portfolio shows that the company takes hard-earned money and invests in under-performing indexes. They also charge management fees and might charge other hidden costs, as well. For individual investors, that is a strong incentive to invest in low-cost, index-tracking ETFs instead of high-cost mutual funds.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.