When most investors think about Vanguard funds, they do so from a point of indexing. After all, John Bogle and Vanguard created the concept of indexing and showed the world it can lead to overall portfolio outperformance and better outcomes. So it’s no wonder why now billions of dollars sit in funds like the Vanguard S&P 500 ETF (NYSEARCA:VOO) and Vanguard funds are synonymous with indexing.
But the asset manager is more than a one-trick index fund pony. Much more.
The truth is, the firm runs one heck of an active shop as well. There are plenty of active Vanguard funds that offer market-beating performance, high long-term returns and the low costs that made Vanguard famous. And it’s because of that low-cost mantra that many of the firm’s actively managed mutual funds can and do outperform their benchmarks. For investors, strictly focusing on the firm’s passive side could be a big mistake.
But with over 190 different investment choices — both passive and active — how do you know which Vanguard funds are right for you? Luckily, we’ve done some of the leg work for you here at InvestorPlace. With that, here are five active Vanguard funds worth buying today.
Vanguard PRIMECAP Fund Admiral Shares (VPMAX)
Expense Ratio: 0.31% annually, or $31 per $10,000 invested.
Minimum Investment: None
When it comes to active Vanguard funds, the Vanguard PRIMECAP Fund Admiral Shares (MUTF:VPMAX) could be the crown jewel under its umbrella. VPMAX has long been one of the best-performing active stock funds in history, and that performance continues to this day. Despite its nearly $64 billion in assets, the fund is still able to generate high returns. That’s due to its strategy.
Managers at VPMAX focus on large- and mid-cap stocks that trading at bargain prices, but have a specific growth catalyst that could propel them forward. This includes everything from buyout potential to new products or restructuring efforts. Moreover, the fund tends to hold these stocks for the long haul, with an average of 12 years. Finally, those $64 billion in assets tend to be very concentrated. Often the 10 holdings represent 30%–40% of the fund’s total assets. Currently, VPMAX only holds 140 total stocks, with Google (NASDAQ:GOOG, NASDAQ:GOOGL) and FedEx (NYSE:FDX) among its top holdings.
The proof for this active Vanguard fund is in the pudding. VPMAX has managed to return more than 17% annually over the last decade. This beats the S&P 500 by a full two percentage points every year. Since its inception in the 1980s, VPMAX has managed to post a nearly 11% annual return.
And while VPMAX is closed to new investors directly, the fund can still be bought via many 401k plans. If it is available to them, investors should jump on the opportunity. Expenses are a dirt-cheap 0.31%, or $31 per $10,000 invested.
Vanguard International Growth (VWIGX)
Expense Ratio: 0.45%
Minimum Investment: $3,000
International markets are often fertile ground for active stock pickers as less attention is paid to them by big Wall Street analysts. And Vanguard has been quite successful in this area. The Vanguard International Growth (MUTF:VWIGX) is the prime example.
Run by two of the top international global investing groups — Baillie Gifford and Schroder’s — VWIGX combs both developed and emerging markets for growth-styled stocks. Baillie Gifford, which controls about 60% of assets, tends to look for faster-growing companies, while Schroder’s will look for those growth stocks trading at bargain prices. The managers are also allowed to move up and down the entire market-cap ladder to find selections.
This strategy has allowed VWIGX to crush the competition. You get both growth and some value tied to it. The fund has outperformed both developed- and emerging-market international indexes as well as other mutual funds in its category. Moreover, the fund has held up better in the recent market wonkiness than its peers as well. However, VWIGX has provided a more volatile ride, due in part to larger weightings in emerging markets.
But for investors with a long-term timeline, the extra volatility is worth it. Over the last decade, the fund has managed to turn a $100,000 investment into nearly $300,000. Not too shabby for an active fund.
Vanguard Short-Term Investment-Grade (VFSTX)
Expense Ratio: 0.2%
Minimum Investment: $3,000
Some of the best active Vanguard funds can be found on the fixed-income side. The firm’s active bond offerings have long allowed investors to get a better yield and returns than many of its indexed products like the Vanguard Total Bond Market ETF (NASDAQ:BND).
A great example is the Vanguard Short-Term Investment-Grade Fund Investor Shares (MUTF:VFSTX).
The fund focuses its attention on short-term and intermediate-term investment-grade fixed income securities. That can include Treasury bonds and corporate securities. What makes it a better fund than its strictly indexed sister — the Vanguard Short-Term Bond Index Fund (MUTF:VBIRX) — is that VFSTX holds a slightly higher concentration of corporate bonds versus Treasuries. This allows the active fund to produce a slightly high yield — currently 2.7% for the 30-day SEC yield and 3% for the distribution yield. However, the focus on corporate debt doesn’t mean that there is a ton of added risk to the fund.
For investors looking for a cash alternative, this is great news, especially, if you are willing to take on just a tad more risk.
The results of this strategy have been positive. VFSTX has been able to generate a nearly 6% return since its inception in the 1980s and has been pretty steadfast over that time. And with an expense ratio of just 0.2%, VFSTX is as cheap as many of Vanguard index funds.
Vanguard Health Care Fund Investor Shares (VGHCX)
Expense Ratio: 0.38%
Minimum Investment: $3,000
Hidden in the garden of the active Vanguard funds happen to be some of the best sector-specific mutual fund options on the whole planet. That includes the top-rated, stellar performer — the Vanguard Health Care Fund Investor Shares (MUTF:VGHCX).
Since 2012, manager Jean Hynes has successfully guided VGHCX on its path and has continued its legacy of great performance. Healthcare continues to be a diverse sector, and Hynes has focused her search for great stocks on several key trends in the industry. This includes our overall aging population, delivery of healthcare, growth in emerging markets and the revolution in biology/genomics. This has created a much more global portfolio than previous allocations for VGHCX. Hynes also runs a pretty concentrated portfolio of her best ideas. Currently, the fund holds just 88 stocks.
However, this hasn’t dampened the performance of this active Vanguard fund. VGHCX has managed to crush its benchmark over the last decade by more than 3 percentage points per year, and that performance has come in good and bad markets. With healthcare getting a tad rocky lately, Hynes’ expertise should help guide the fund through any malaise.
All in all, when it comes to active Vanguard funds, VGHCX is simply one of the best.
Vanguard STAR Fund (VGSTX)
Expense Ratio: 0.31%
Minimum Investment: None
One of Vanguard’s missions is helping investors of any size get started on the journey to saving. And while many Vanguard funds require $3,000 or even $10,000 initial investments, the active Vanguard STAR Fund (MUTF:VGSTX) features a low investment minimum of $0. And investors get a lot for that little starting price.
VGSTX is a balanced fund and holds stocks, bonds and short-term investments designed to provide long-term growth of capital. Currently at a 70/20/10 mix. In the end, it’s designed to be a one-stop shop for investors. And given its low initial investments, the fund makes an ideal way for savers just starting out or those looking to provide gifts to children/grandchildren.
But don’t let the goofy name or low minimums fool you. The STAR fund is really a star in Vanguard’s active line-up.
Since its inception in 1985, VGSTX has managed to produce a 9.85% annual total return. Over the last decade, it’s managed to produce a 10.88% annual total return. That’s not too shabby for a fund holding stocks, bonds, and other assets. It shows that Vanguard still takes the fund seriously. Helping guide that overall return is its low expense ratio — currently at 0.31%. That’s about half of what you’ll pay for similar funds at other active shops.
For those looking for a no-nonsense total portfolio, VGSTX is a serious contender among active Vanguard funds.
At the time of writing, author Aaron Levitt did not hold a position in any fund mentioned.
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