Investors have showered their love for Vanguard mutual funds in 2015. According to Morningstar Inc., The Vanguard Group, which is a passively managed fund house, witnessed $236 billion flow of money in 2015 - the largest in the industry. This reflects investors' tendency to shift away from active money managers.
Moreover, Vanguard's products being relatively less expensive the demand was high in 2015, as investors did not rely on more expensive managers in a volatile market. According to Vanguard CEO Bill McNabb, "Vanguard continues to set the standard as the industry's low-cost leader, reducing costs not just on a subset of products, but across our funds and ETFs."
It seems like 2016 is shaping up to be a year of significant uncertainty and volatility. Sluggish Chinese economy growth and a rout in global oil prices have dragged the broader markets into negative territory. Hence, to navigate these choppy waters, Vanguard funds are the best choices. They are pretty versatile offering solutions for just about any adverse situation. Vanguard is one of the world's largest investment management companies and has crossed the lofty milestone of $3 trillion in assets under management.
Vanguard Fund's Performance in 2015
In the first quarter, the Vanguard Pacific Stock Index Investor (MUTF:VPACX) returned 8% and was the top gainer. VPACX had then managed to beat the broader Diversified Pacific/Asia's first quarter return of 7.4%. For the Vanguard mutual funds, the top performers mostly included funds from Health, Foreign and Small Cap categories.
Vanguard's second quarter performance moderated considerably from the first. If we look at the top 15 gainers in first quarter, the minimum gain of 4.7% was higher than the best gain of the second quarter. Vanguard's top gainer in the second quarter was the Vanguard Health Care Investor (MUTF:VGHCX). The fund gained just 3.8%. According to Morningstar, Vanguard's total return as of Jun 30, 2015 was 2%, slightly ahead of the category average of 1.9%.
The third quarter was ravaged by China-led global growth fears, uncertainty about the Fed rate hike, sell-off in biotech stocks and tumbling commodity prices. Amid these headwinds, the Vanguard Group managed to deliver a decent performance. Its best gain hit 8.4%, achieved by Vanguard Extended Duration Treasury Index Fund Institutional (MUTF:VEDTX).
Vanguard's performance in the third quarter was also relatively better than many of its key peers. For instance, Vanguard's top gaining fund had higher returns than the best gainers from Fidelity, BlackRock (NYSE:BLK), Wells Fargo (NYSE:WFC) and American Funds. In the second quarter, Vanguard had failed to beat any of these fund families.
By the end of the year, Vanguard has been able to attract a large inflow of money, an undeniable evidence that investors have flocked to passively managed funds. Vanguard exceeded its previous industry mark set in 2014 with net inflow of $214.5 billion.
Investors added $361.8 billion in all passively managed funds during the first 11 months of 2015, out of which the majority poured into Vanguard funds. On the other hand, they have withdrawn $139.5 billion from actively managed funds, according to Morningstar.
Meanwhile, investors paid less than 18 cents per $100 invested in Vanguard products in 2015, according to Morningstar. This compares favorably with actively managed funds, which charged $1.23 per $100.
Low Expense Ratio
Last year, Vanguard reported expense ratio reductions for 102 individual mutual fund shares, while in 2014 Vanguard had posted lower expense ratios for 90 individual mutual fund shares. Lower expense ratios have helped Vanguard clients to save a total of about $12.4 million in 2015.
Vanguard has a history of lower expenses. It managed $1.8 billion in U.S. fund assets in 1975 with an average expense ratio of 0.89%. Currently, the fund manages about $3.2 trillion in U.S. fund assets, while the average expense ratio has decreased to around 0.18%. In fact, on an asset-weighted basis, the average expense ratio is even lower at 0.14%.
5 Best Performing Vanguard Mutual Funds in 2015
Founded by John C. Bogle in 1975, Vanguard offers asset management and financial planning services to clients throughout the globe. Vanguard stands out from other mutual fund companies because it sports very low expense ratios compared to its peers in the fund industry. This helps investors boost their returns. Moreover, since the broader markets are currently plagued with global growth worries, these low-cost funds are best suited to navigate the volatile markets.
We have shortlisted the top five Vanguard mutual funds that have impressive 3-year and 5-year annualized returns and carry Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). These funds also possess a relatively low expense ratio and the minimum initial investment is within $5000. These funds not only gained in 2015 but may move further north in the near term, making them the funds to buy now.
The Vanguard U.S. Growth Portfolio (MUTF:VWUAX) seeks long-term growth of capital. VWUAX invests mainly in large-capitalization stocks of seasoned U.S. companies with records of superior growth. VWUAX's 3-year and 5-year annualized returns are 14.4% and 12.1%, respectively. Annual expense ratio of 0.33% is lower than the category average of 1.18%.
The Vanguard U.S. Growth Portfolio (MUTF:VWUSX) seeks long-term capital appreciation. VWUSX invests mostly in large cap U.S. companies considered to have above-average earnings growth potential. VWUSX's 3-year and 5-year annualized returns are 14.2% and 11.9%, respectively. Annual expense ratio of 0.47% is lower than the category average of 1.18%.
The Vanguard Health Care Investor (VGHCX) seeks long-term growth of capital and dividend income. VGHCX invests in common stocks of companies in a variety of segments of the health-care industry. VGHCX's 3-year and 5-year annualized returns are 22.3% and 19.1%, respectively. Annual expense ratio of 0.34% is lower than the category average of 1.36%.
The Vanguard International Explorer Investor (MUTF:VINEX) seeks to provide long-term capital appreciation. VINEX invests primarily in the equity securities of smaller companies (generally having market capitalizations of $2.5 billion or less at the time of investment) located outside the U.S. VINEX's 3-year and 5-year annualized returns are 7.6% and 3.7%, respectively. Annual expense ratio of 0.42% is lower than the category average of 1.38%.
The Vanguard California Long-Term Tax-Exempt Investor (VCITC) seeks high level of income exempt from both federal and California personal income taxes. VCITX invests primarily in high quality, long-term municipal bonds issued by California's state and local governments and regional governmental authorities. VCITX's 3-year and 5-year annualized returns are 4.5% and 7.3%, respectively. Annual expense ratio of 0.20% is lower than the category average of 0.90%. VCITX boasts a Zacks Mutual Fund Rank #1 (Strong Buy).
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