Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Christine Benz and Bridget B. Hughes, CFA | 02-03-2014 10:00 AM

Will Tailwinds Keep Vanguard on Course?

Most Vanguard funds delivered another solid year in 2013, but management changes and a shift out of its fund comfort zone are things to watch this year.

Christine Benz: Hi, I'm Christine Benz for Vanguard had another solid year in 2013, both in terms of performance and in terms of asset gathering. Joining me to provide a recap as well as a look forward is Bridget Hughes. She is associate director of fund research for Morningstar. Bridget, thank you so much for being here.

Bridget Hughes: Thanks, Christine.

Benz: Vanguard is obviously very much in the news in terms of its big asset-gathering capabilities over the past couple of years. I'd like to start, Bridget, by taking a look backward at 2013, looking at asset class by asset class to see how Vanguard did, when you look at average returns within each of the asset classes. How about domestic equity?

Hughes: Vanguard had, I think, a pretty solid year in domestic equity. None of its funds landed in the worst third in its respective categories. On average they were at about the top third. And what we saw there really, again, just like last year, is that those actively managed funds were sort of pushing that average up. A lot of the index-oriented funds were maybe in the [top] 40th percentile, so they were better than average, but some of the domestic-equity actively managed funds really brought the number even higher.

Benz: Can you name a couple of those funds?

Hughes: Yes, there is the Primecap suite of funds; there are three of them. They really stood out with top-decile performance across the board. Then there is also, again, just like last year, some of the more aggressively managed active funds like Vanguard Capital Value that really performed well in this continued equity rally.

Benz: International-equity [funds were] not quite as impressive in terms of that average performance, but still above-average?

Hughes: Right, still above-average. It's a similar story in a way that some of the index funds were sort of around the middle. But remember there is a much smaller suite of mutual funds on that international side, and some of those categories are very disparate. It's not surprising to see kind of a broader distribution of category rankings.

Benz: Then in terms of asset-allocation funds, or funds that split their assets between stocks and bonds, you found a decent performance there, as well?

Hughes: Right. They also did very well. We were including the Vanguard target-date series in that calculation. And again, on average, they landed around the top third of their respective categories.

Benz: For fixed income, it was a tough year for bond managers or any sort of bond investors last year. The relative rankings weren't quite as good.

Hughes: Right. I split this into two groups: the municipal side and the taxable fixed-income side. On the municipal side, actually Vanguard did quite well with an average category rank around the top quartile, and that includes some of those single-state categories. But even looking at Vanguard's muni-national funds, short duration, intermediate term and long term, they all did pretty well.

On the taxable side, it really was a struggle. There was a lot of bottom-decile performance from some of those funds, but remember Vanguard is an index manager. There is no duration management. They tend to have more Treasuries than some of the other funds in their categories, and that really hurt them in 2013.

Read Full Transcript
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article