PDF Vanguard Funds to Buy & Sell - Forbes

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Vanguard Funds to Buy & Sell

By Janet Brown

Markets have changed this year. The U.S. large-cap growth funds that were in favor for the last few years haven't done as well in 2016. Instead, smaller-cap funds, value funds and especially dividend-focused funds have performed well. My firm has been helping investors capitalize on these changes and keep their portfolios invested in top funds for more than 40 years. I encourage investors to first consider how much risk they're willing to take--and then to invest in funds in that risk level that have strong recent returns.

Funds that have done well recently tend to continue to do well for the next few months or even years. Academics call this "persistence of performance," and they've studied it for decades. Morningstar even found evidence of it in its January 2016 study, "Performance Persistence Among U.S. Mutual Funds."

Vanguard is the largest fund company in the world and the second largest exchange-traded fund provider. Many investors are offered Vanguard funds and ETFs in their retirement plans or their brokerage accounts. But with 280 Vanguard funds and ETFs to choose from, how can an investor know which are the best to own now (and which funds should they sell)?

But before I get into which Vanguard funds are in favor now, and which to avoid, there are a few things investors should know upfront about Vanguard funds:

Share classes Most Vanguard funds have different share classes. Your retirement plan may include an institutional share class (with lower fees), while your broker likely includes a retail class. Many Vanguard funds also have an ETF share class. In my NoLoad FundX newsletter, I typically include ETF share classes whenever possible because they usually have the widest availability.

Transaction Fees At most brokers, you'll have to pay a transaction fee to buy into a Vanguard fund. At Fidelity and Schwab, this fee will run you about $75. This fee has a larger impact on smaller accounts, so I encourage investors who are managing smaller accounts to focus on funds that are available NTF or no transaction-fee.

Availability Many well known and strong performing Vanguard funds are closed to new investors. The PrimeCap funds are one example.

Indexes Many Vanguard ETFs track different indexes than you might expect, and these indexes aren't always the most common or the best performing indexes. Take small-cap indexes, for example, the Russell 2000 index and the S&P 600 index are two common small-cap indexes, but the Vanguard Small Cap ETF (VB) doesn't track either of these indexes. Instead, it tracks the CRSP U.S. Small Cap Index. (CRSP stands for Center for Research in Security Prices.) .

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3 VANGUARD FUNDS TO BUY NOW

Vanguard High Dividend Yield (VYM)

Expense ratio: 0.09

Total Net Assets: $20.9 billion 12-Month Total Return: 11.1%

Vanguard High Dividend Yield tracks the FTSE High Dividend Yield Index, which is composed of more than 400 large-cap stocks with high dividend yields (it excludes REITs). The index is broadly diversified across a range of sectors, including 15% in consumer goods, 13% in financials and 13% in technology stocks. VYM's top five holdings are Microsoft, Exxon Mobil, Johnson & Johnson, General Electric and AT&T.

For the 12 months ending July 31, the fund returned 11.1%, gaining twice as much as the S&P 500, which was up 5.5%. It's worth noting that while VYM has been one of the strongest performing Vanguard funds, other dividend ETFs have performed even better. SPDR S&P Dividend (SDY), which tracks the S&P High Yield Dividend Aristocrats Index, for example, was up 18.4% for the trailing year.

Trading Tip: The fund is also available as an investor shares fund, VHDYX, which requires a minimum investment of $3,000. At most brokers, you'll have to pay a transaction fee to buy into a Vanguard fund.

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Vanguard Mid-Cap Value (VOE)

Expense ratio: 0.08

Total Net Assets: $11.1 billion

12-Month Total Return: 4.5%

Vanguard Mid-Cap Value gives you access to one of the strongest performing areas of the market this year: mid-cap value stocks. VOE tracks the CRSP U.S. Mid-Cap Value Index of 200 mid-cap value stocks. It has a substantial 23% stake in financial companies and another 17% in consumer goods. VOE's top five holdings are Fidelity National Information Services, Newell Brands, Newmont Mining, Tyson Foods and WEC Energy Group.

Mid-cap value stocks have done particularly well over the past six months: Vanguard Mid-Cap is up 17% for the six months ending July 31.

Trading Tip: This fund is also available as both an admiral share class, VMVAX, and an investor share class, VMVIX. The admiral shares require a minimum investment of $10,000; the investor shares require a minimum of $3,000. At most brokers, you'll have to pay a transaction fee to buy into a Vanguard fund.

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Vanguard Small Cap Value (VBR)

Expense ratio: 0.08

Total Net Assets: $20.4 billion

12-Month Total Return: 5.9%

Small-caps, particularly small-cap value, did poorly in 2015 (down 7.7%), but they've done quite well in 2016, and one of the best performing small-cap value funds is Vanguard Small Cap Value.

VBR tracks the CRSP U.S. Small Cap Value Index, which includes more than 800 stocks with a focus on financials (30%) and industrials (20%). Small-cap stocks tend to be a little more volatile than large- or mid-cap stocks, so you should expect VBR to be a bit more aggressive than Vanguard High Yield or Vanguard Mid-Cap Value. VBR is up 20% for the six months ending July 31.

TradingTip: This fund is also available as both an admiral share class, VSIAX, and an investor share class, VISVX. The admiral shares require a minimum investment of $10,000; the investor shares require a minimum of $3,000. At most brokers, you'll have to pay a transaction fee to buy into a Vanguard fund.

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