How Well Did the Retirement Saver Portfolios Perform in 2021?

Solid stock-market gains powered strong results in all of the Retirement Saver model portfolios, especially the equity-heavy Aggressive versions. But simple was best in 2021, as the exchange-traded fund portfolios soundly beat their mutual fund counterparts, which tilt heavily toward active funds.

All six of the baseline portfolios geared toward retirement savers (people in the accumulation phase) notched double-digit gains in 2021, a year in which the S&P 500 gained nearly 30%. While high-quality bonds struggled amid news of interest-rate hikes in 2021, four of the six portfolios have fairly light fixed income exposure: just 5% for the Aggressive portfolios and 20% for the Moderate ones. (The Conservative portfolios, which are geared toward risk-intolerant investors and/or those nearing retirement, have substantially more in fixed income, at roughly 50% of total assets.)

One of the most striking features of the portfolios’ 2021 results was the extent to which the ETF portfolios bested their mutual fund counterparts. Even though Oakmark OAKMX and Oakmark International Small Cap OAKEX were standout performers for the mutual fund portfolios, the portfolios’ aggregate equity exposure failed to best the plain-vanilla index trackers in the ETF portfolios. The ETF portfolios also got a bit of a boost from their dash of small-value exposure, as small-value stocks came on strong after a string of lackluster gains in the years prior.

Aggressive Mutual Fund Saver Portfolio

20% Primecap Odyssey Growth POGRX 20% Oakmark Fund OAKMX 15% Vanguard Extended Market Index VEXAX 33% Vanguard Total International Stock Index VTIAX 7% Oakmark International Small Cap OAKEX 5% Metropolitan West Total Return Bond MWTRX 2021 Return: 16.53%

Moderate Mutual Fund Saver Portfolio

15% Primecap Odyssey Growth 15% Oakmark Fund 15% Vanguard Dividend Appreciation Index VDADX 10% Vanguard Extended Market Index 21% Vanguard Total International Stock Index 5% Oakmark International Small Cap 19% Metropolitan West Total Return Bond 2021 Return: 15.21%

Conservative Mutual Fund Saver Portfolio

10% Primecap Odyssey Growth 10% Oakmark Fund 10% Vanguard Dividend Appreciation Index 7% Vanguard Extended Market Index 10% Vanguard Total International Stock Index 4% Oakmark International Small Cap 30% Metropolitan West Total Return Bond 7% Fidelity Short-Term Bond FSHBX 12% Vanguard Short-Term Inflation-Protected Securities Index VTAPX 2021 Return: 10.31%

Performance Recap: All of the stock funds in the portfolio delivered strong gains in absolute terms in 2021, though just one of the funds in the portfolios (Oakmark Fund) managed to beat the S&P 500 last year. Meanwhile, Primecap Odyssey Growth and Vanguard Extended Market Index both had years to forget. Primecap Odyssey Growth resides in the large-growth Morningstar Category, but its contrarian growth strategy has kept it notably light on stocks such as Apple AAPL, which have helped some of its peers deliver stellar results over the past three and five years. Vanguard Extended Market Index, meanwhile, skews toward the small- and mid-growth squares of the Morningstar Style Box, which were the worst-performing parts of the style box last year. Vanguard Dividend Appreciation Index, a holding in the Moderate and Conservative portfolios, also underperformed the S&P and its large-blend peers; its light weighting in technology stocks was a key culprit.

On the fixed-income side, core bond holding Metropolitan West Total Return Bond posted a lackluster showing amid a tough year for high-quality bonds. It was positioned defensively, de-emphasizing lower-quality bonds, but such bonds outperformed higher-quality credits amid interest-rate jitters in 2021. And the Aggressive and Moderate portfolios lacked exposure to one of the bright spots in the bond space last year: Treasury Inflation-Protected Securities. (I wouldn’t typically recommend an allocation to TIPS for people who aren’t yet retired or getting close to retirement.)

Portfolio Changes: None. All of the holdings in the mutual fund portfolios retain Morningstar Medalist ratings at this juncture. However, investors who haven't rebalanced recently, especially between growth and value, large and small, and U.S. and non-U.S., might consider doing so, as the performance differential has been stark over the past three- and five-year periods.

Aggressive ETF Saver Portfolio

50% Vanguard Total Stock Market ETF VTI 10% Vanguard Small-Cap Value ETF VBR 30% Vanguard FTSE Developed Markets ETF VEA 5% Vanguard FTSE Emerging Markets ETF VWO 5% iShares Core Total USD Bond Market ETF IUSB 2021 Return: 19.14%

Moderate ETF Saver Portfolio

47% Vanguard Total Stock Market ETF 8% Vanguard Small-Cap Value ETF 20% Vanguard FTSE Developed Markets ETF 5% Vanguard FTSE Emerging Markets ETF 20% iShares Core Total USD Bond Market ETF 2021 Return: 16.44%

Conservative ETF Saver Portfolio

33% Vanguard Total Stock Market ETF 5% Vanguard Small-Cap Value ETF 10% Vanguard FTSE Developed Markets ETF 4% Vanguard FTSE Emerging Markets ETF 30% iShares Core Total USD Bond Market ETF 11% Vanguard Short-Term Inflation-Protected Securities ETF VTIP 7% Vanguard Short-Term Bond ETF BSV 2021 Return: 11.21%

Performance Recap: All three of the ETF portfolios performed better than their mutual fund counterparts, as noted above. Vanguard Total Stock Market ETF and Vanguard Small Cap Value VBR performed better than almost all of the domestic-equity funds in the mutual fund portfolios, save for Oakmark Fund. In contrast with 2020, when it brought up the rear, small-value was the best-performing square of the style box last year.

Portfolio Changes: None. However, given the underperformance of international stocks, especially emerging markets, investors who track this or a similar portfolio mix might consider rebalancing to boost their positions in those names.