Vanguard Equity-Income Is a Solid Choice for Dividend-Seeking Investors

Key Morningstar Metrics for Vanguard Equity-Income

• Morningstar Medalist Rating: Silver
• Process Pillar: Above Average
• People Pillar: Average
• Parent Pillar: High

Vanguard Equity-Income VEIRX has one new manager who stood pat, while the other made upgrades.

Portfolio manager Matthew Hand of subadvisor Wellington Management runs two thirds of the fund’s assets solo, after longtime skipper Michael Reckmeyer retired effective June 30, 2022. Hand joined the firm and team in 2004 as an analyst, entered its portfolio manager training program in 2018, and rose to the portfolio’s helm alongside Reckmeyer in October 2021. This fund marks his first public experience as a portfolio manager.

As of Oct. 1, 2021, Sharon Hill runs the rest of the fund’s assets within Vanguard’s Quantitative Equity Group. Hill joined Vanguard in August 2019 as a quantitative investing veteran after two decades at Macquarie Group. She became a named manager here in early 2021 and took full charge following the retirements of James Stetler and Binbin Guo later that year.

While Hand retained Wellington’s process for its sleeve, Hill has made good changes for QEG’s portion. Like his predecessor, Hand invests in roughly 60-70 dividend-payers that he thinks have a nice balance of growth prospects and low valuation. Hill, however, has replaced a broad stock-selection model with one aimed at dividend-paying stocks.

The fund’s FTSE High Dividend Yield Index prospectus benchmark signals its income mandate. The QEG team hews closely to that index’s sector and stock weights. Wellington deviates modestly from the bogy’s sector weights but meaningfully with individual stocks. The yield focus makes the fund look quite different from the Russell 1000 Value Index, the large-value Morningstar Category benchmark.

With very low costs relative to its actively managed peers, the Vanguard Equity-Income is a strong choice for equity-income seekers.

Vanguard Equity-Income: Performance Highlights

The strategy has a great long-term record and a decent one under the new managers.

Since the FTSE High Dividend Yield Index’s inception on Nov. 10, 2006, the fund’s investor shares have gained 9.1% annualized through March 31, 2024, leading the bogy’s 8.6% gain. Both substantially top the typical large-value category peer and category index Russell 1000 Value benchmark. From October 2021, when Wellington’s Hand officially took charge, through March 2024, the fund’s investor shares have gained an annualized 9.8%, topping the Russell 1000 Value Index’s 7.9% and average category peer’s 9.0% gains; however, it does lag the 10.0% mark of the FTSE High Dividend Yield Index prospectus benchmark.

In line with expectations that a dividend-focused fund should protect capital during market pullbacks, the fund did so in 2022′s global equity market selloff. While the Russell 1000 Value Index fell 7.5% for the year, the fund ended the year flat, a better showing than 90% of large-value peers. The fund’s income return for the year was 2.8% in 2022, also a top-decile result.

Vanguard Equity-Income’s stout defense has a trade-off: It often lags in rallies. So after 2022′s relative triumph, 2023 results were no surprise. While the category benchmark and typical large-value fund gained 11.5% and 11.6%, respectively, that year, this fund managed just 7.7%, which topped the 6.6% return from the FTSE High Dividend Yield Index.