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Minding the Downside Pays for This Gold-Rated Fund

Alec Lucas, Ph.D.

Alec Lucas: Vanguard Dividend Growth (VDIGX) is a great option for investors who are concerned about downside protection. Manager Don Kilbride has been at the helm since early 2006. He looks for stocks that have proved willing and able to increase their dividends over time. And he builds a relatively compact portfolio of about 50 stocks, dominated by large-cap names. The portfolio tends to be defensive, which means that you can expect this fund to lag when stocks soar.

For example, recently, the fund finishes in the bottom third of the large-blend category. But when stocks plummet, this fund shines. The fund, for example, in 2011 gained 9.4%, which was good enough for the top percentile of the category that year. Over the long haul, this combination of above-average downside protection while participating in the market's gains has led to fantastic performance.

From mid-2006 through November of this year, the fund has beaten its dividend-focused benchmark in 93% of roughly 45 rolling five-year periods. So, its performance has been consistent and above average. It's a fantastic choice.