Vanguardfi Health Care Fund - The Vanguard Group

Vanguard? Health Care Fund

Product Summary Health care sector fund. Seeks long-term capital appreciation. Invests across industry subsectors and market capitalizations. Invests in health care companies based in the United States and abroad. Fundamental approach. More geographically diversified than most competitors.

Vanguard?

Quarterly Commentary

The U.S. stock market was volatile in the fourth quarter of 2022 but regained some of the ground lost earlier in the year. Even amid fears of a global recession, investor sentiment improved on the prospect that inflation, while still running hot, might have peaked. Another boost came from major central banks including the Federal Reserve, the Bank of England, and the European Central Bank slowing the pace of their interest rate hikes late in the quarter. Despite some backsliding in December, stocks ended the three months up significantly, with Europe seeing particularly strong gains. For the quarter, Vanguard Health Care Fund underperformed its benchmark, the MSCI ACWI Health Care Index (+13.14%), but outperformed its peer-group average (+10.17%). Security selection in the biotechnology industry (+15.4%) hurt performance most, with a lack of exposure to BeiGene (+65%) detracting most. Selection in health care services (+9.5%) also dampened results. A lack of exposure to Novo Nordisk (+34%) was the biggest detractor for the quarter. The top contributor was the fund's underweighting of Roche Holding AG (?4%). For the 12 months ended December 31, the fund outperformed its benchmark (?6.14%) and peer average (?13.73%). The outperformance was driven by selection within health care equipment (?22.6%) and biotechnology (+3.3%), where an underweighting of Abbott Laboratories (?21%) and an overweighting of Alnylam Pharmaceuticals (+40%) specifically helped. The fund's top contributor for the year was Eli Lilly and Co. (+34%). Note: Company returns may differ if a security was held in the portfolio for less than the full period.

People and Process Vanguard Health Care Fund seeks long-term capital appreciation by investing in stocks broadly representing the health care industry. The advisor seeks to maintain exposure across five primary subsectors: health services, medical products, specialty pharmaceuticals, major pharmaceuticals, and international markets. Fundamental research focuses on companies with high-quality balance sheets, strong management, and the potential for new products that will lead to above-average growth in revenue and earnings. Reflecting the advisor's contrarian style, stocks may be purchased after negative events have caused a decline in share price. Assets are usually concentrated in the top ten holdings, but the fund remains invested across both subsectors and market capitalizations. Because of the industry's long product-development cycle, the advisor pursues a long-term investment approach that has resulted in below-average turnover. The fund historically has been more geographically diversified than other health care sector funds.

Wellington Management Company LLP Founded in 1928, Wellington Management Company LLP, Boston, Massachusetts, is among the nation's oldest and most respected institutional investment managers. The firm has advised Vanguard Health Care Fund since 1984. Investment Manager Biographies Jean M. Hynes, CFA, CEO of Wellington Management Company, Managing Partner and Equity Portfolio Manager. Portfolio manager. Advised the fund since 2008. Worked in investment management since 1991. B.A., Wellesley College.

As of December 31, 2022

Vanguard Health Care Fund

Total Returns

Health Care Fund Investor Shares (5/23/1984) Admiral Shares (11/12/2001)

Spliced Health Care Index Global Health/Biotechnology Funds Average

Expense Ratio

0.30% 0.25

--

--

Quarter

11.82% 11.84 13.14

10.17

Year to Date

-1.05% -1.01 -6.14

-13.73

1 Year

-1.05% -1.01 -6.14

-13.73

3 Years

8.40% 8.45 8.20

4.85

5 Years

9.63% 9.69 9.59

8.12

10 Years

13.58% 13.64 11.67

11.93

The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors' shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at performance. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. Figures for periods of less than one year are cumulative returns. All other figures represent average annual returns. Performance figures include the reinvestment of all dividends and any capital gains distributions. All returns are net of expenses. Note: Spliced Health Care Index: S&P 500 Index through December 31, 2001; S&P Health Care Index through May 31, 2010; MSCI All Country World Health Care Index thereafter. Average fund returns are derived from data provided by Lipper, a Thomson Reuters Company. Admiral class shareholders are required to maintain specific minimum balances and meet other special criteria.

As of December 31, 2022

Vanguard Health Care Fund

Quarterly Returns: Investor Shares

Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

1st Quarter -3.09% -0.29

-10.98 7.91 0.21

10.58 -8.84 9.64 8.84 14.43 7.93

2nd Quarter -5.57% 10.70 16.16 -0.98 0.52 6.54 5.42 3.80 5.17 5.00 1.38

3rd Quarter -3.30% -1.23 4.11 -1.53 13.07 0.97 0.71 -8.90 3.90 7.56 5.27

4th Quarter 11.82% 4.84 4.61 16.84 -11.18 0.55 -5.97 8.65 8.06 10.80 -0.07

Health Care -1.05% 14.30 12.62 22.93 1.15 19.61 -8.99 12.65 28.52 43.19 15.11

Spliced Health

Care Index -6.14% 17.50 14.87 22.67 1.71 20.14 -6.83 6.33 18.13 35.76 17.77

Year-End

Assets (Millions)

$7,542 8,140 8,327 8,977 8,315 9,487 9,550

12,018 11,252

9,636 8,143

Quarterly Returns: Admiral Shares

Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

1st Quarter -3.08% -0.27

-10.97 7.92 0.22

10.59 -8.83 9.66 8.85 14.44 7.95

2nd Quarter -5.57% 10.71 16.18 -0.96 0.53 6.55 5.43 3.81 5.18 5.01 1.38

3rd Quarter -3.29% -1.21 4.12 -1.52 13.08 0.99 0.72 -8.89 3.91 7.58 5.29

4th Quarter 11.84% 4.86 4.62 16.85 -11.17 0.56 -5.95 8.67 8.07 10.81 -0.05

Health Care -1.01% 14.36 12.67 22.98 1.21 19.66 -8.94 12.71 28.57 43.27 15.17

Spliced Health

Care Index -6.14% 17.50 14.87 22.67 1.71 20.14 -6.83 6.33 18.13 35.76 17.77

Year-End

Assets (Millions) $40,265

43,436 40,704 39,149 35,608 37,667 33,299 40,299 33,375 24,142 14,958

As of December 31, 2022

Vanguard Health Care Fund

Fund Facts

Fund Number Ticker Newspaper Listing CUSIP Number Assets (millions)

(Total $47,807) Inception Expense Ratio

(as of 5/2022)

Equity Characteristics

Number of stocks Median market cap Average market cap Price/earnings ratio Price/book ratio Return on equity Earnings growth rate Equity yield (dividend) Foreign holdings Short-term reserves Turnover rate (fiscal year end)

Investor Shares 0052 VGHCX

HlthCare 921908307

$7,542

5/23/1984

0.30%

Admiral Shares

0552 VGHAX HlthCareAdml 921908885 $40,265

11/12/2001

0.25%

Health Care

MSCI ACWI Health

Care

108

252

$69.5 Billion $140.1 Billion

$139.6 Billion $184.0 Billion

21.5x 4.3x

21.8x 4.2x

15.2%

20.7%

17.5% 1.1%

16.6% 1.7%

27.0%

0.0%

1.6%

--

14.9%

--

Volatility Measures

R-Squared

Beta

Spliced Health Care Index DJ US Total Stock Mkt Float Adj Idx

0.96

0.95

0.67

0.58

R-squared and beta are calculated from trailing 36-month fund returns relative to the associated benchmark.

Top 10 Largest Holdings

% of Total Net Assets

UnitedHealth Group Inc. Eli Lilly & Co.

6.6 % 5.9

AstraZeneca plc

5.5

Pfizer Inc.

5.2

Novartis AG

4.1

Merck & Co. Inc.

3.2

Daiichi Sankyo Co. Ltd.

3.0

Elevance Health Inc.

2.9

Biogen Inc.

2.8

Stryker Corp.

2.7

Total

41.9 %

The holdings listed exclude any temporary cash investments and equity index products.

Sector Diversification (% of Stocks)

Health Care

MSCI ACWI Health

Care

Overweight/ Underweight

Biotechnology Consumer Staples

22.1%

14.7%

7.4

0.1

0.0

0.1

Health Care Distributors

0.1

1.7

-1.6

Health Care Equipment

11.6

14.1

-2.5

Health Care Facilities

2.5

1.5

1.0

Health Care Services

1.5

3.9

-2.4

Health Care Supplies

1.2

2.5

-1.3

Health Care Technology Life Sciences Tools & Services

0.0

0.5

-0.5

9.0

10.6

-1.6

Managed Health Care

14.0

10.0

4.0

Pharmaceuticals

37.9

40.5

-2.6

Total

100.0%

100.0%

Sector categories are based on the Global Industry Classification Standard (GICS), except for the Other category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.

As of December 31, 2022

Vanguard Health Care Fund

3 month attribution

Pharmaceuticals Health Care Equipment Health Care Facilities Health Care Technology Drug Retail Health Care Distributors Life Sciences Tools & Services Health Care Supplies Managed Health Care Health Care Services Biotechnology Total

Portfolio

Avg. weight

37.5 11.5

2.3 0.0 0.1 0.1 8.9 1.1 14.6 1.6 22.2 100.0

3 mo. return

15.1 15.4 25.2

2.7 30.9 12.7

9.4 9.3 6.7 -9.6 10.0 11.9

Contrib. Return

5.5 1.7 0.5 0.0 0.0 0.0 0.8 0.1 1.2 -0.2 2.2 11.9

Benchmark

Avg. weight

39.7 14.2

1.4 0.5 0.0 1.7 10.4 2.4 10.3 4.0 15.4 100.0

3 mo. return

14.1 13.7 22.6 -2.5

0.0 15.0

9.8 15.1

6.1 9.5 20.2 13.6

Contrib. Return

5.5 1.9 0.3 0.0 0.0 0.3 1.0 0.3 0.7 0.4 3.1 13.6

Attribution

Alloc. effect

0.0 0.0 0.1 0.1 0.0 0.0 0.1 0.0 -0.3 0.1 0.4 0.5

Select effect

0.3 0.2 0.1 0.0 0.0 0.0 0.0 -0.1 0.1 -0.4 -2.2 -2.2

Total effect

0.3 0.2 0.1 0.1 0.0 0.0 0.0 -0.1 -0.2 -0.3 -1.8 -1.6

12 month attribution

Portfolio

Avg. weight

12 mo. return

Contrib. Return

Benchmark

Avg. weight

12 mo. return

Contrib. Return

Attribution

Alloc. effect

Select effect

Total effect

Health Care Equipment

12.3

-15.7

-2.7

15.1

-22.6

-4.4

0.5

1.1

1.6

Biotechnology

20.6

7.2

2.3

14.7

3.3

1.0

0.6

0.7

1.4

Pharmaceuticals

38.3

5.9

2.3

39.5

2.9

1.3

0.0

1.1

1.1

Managed Health Care

14.7

8.0

1.3

9.8

6.8

0.8

0.7

0.2

0.8

Life Sciences Tools & Services

9.0

-24.8

-2.8

10.9

-26.5

-3.7

0.5

0.2

0.7

Health Care Supplies

1.1

-44.9

-0.6

2.2

-35.8

-1.0

0.4

-0.2

0.3

Health Care Technology

0.0

2.7

0.0

0.8

-37.1

-0.4

0.3

0.0

0.3

Health Care Facilities

2.3

0.7

0.0

1.4

-6.4

-0.1

0.0

0.2

0.2

Drug Retail

0.1

6.8

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Internet & Direct Marketing Retail

0.0

0.0

0.0

0.0

-16.8

0.0

0.0

0.0

0.0

Life & Health Insurance

0.0

-27.5

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Health Care Distributors

0.1

-36.2

0.0

1.6

26.8

0.4

-0.4

0.0

-0.5

Health Care Services

1.5

-33.4

-0.6

4.0

-2.0

-0.1

-0.1

-0.6

-0.7

Total

100.0

-0.9

-0.9

100.0

-6.2

-6.2

2.6

2.7

5.3

The portfolio attribution data shown above is provided by FactSet based on information provided by Vanguard about the fund's daily portfolio holdings as of the market close. Because the fund buys and sells stocks throughout the trading day and not necessarily at the market close, the attribution data shown above is an estimate and may not precisely reflect actual attribution information. Information noted above does not reflect fair-value adjustments to prices of foreign securities held in the portfolio.

Top contributors--3 month

Roche Holding AG Medtronic Public Limited Company Genmab A/S CVS Health Corporation Johnson & Johnson

3 mo. return

-4.3 -2.9 30.4 -1.7 8.8

Total Ending Bench effect weight weight

0.6

0.0

3.1

0.3

0.0

1.4

0.3

2.1

0.4

0.3

0.0

1.6

0.3

0.0

6.2

Top detractors--3 month

Gilead Sciences Inc. BeiGene Ltd. Agilon Health Inc. Novo Nordisk A/S Merck & Co. Inc.

3 mo. return

40.3 65.4 -31.1 34.2

4.6

Total Ending Bench effect weight weight

-0.3

0.0

1.4

-0.4

0.0

0.1

-0.4

0.5

0.0

-0.5

0.0

3.0

-0.5

3.2

3.7

As of December 31, 2022

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