How Did the Retirement Saver Portfolios Perform in 2022?

My Retirement Saver portfolios are geared toward people who are several (or more) years away from retirement. As such, they hold sizable allocations in stocks, ranging from 95% in the Aggressive portfolios to 50% in the Conservative versions.

That fairly heavy equity exposure, plus losses in the bond holdings due to last year’s series of interest-rate increases, led to double-digit declines across all of the Retirement Saver portfolios. The U.S. equity exposure that worked in the portfolios’ favor over the past several years contributed the lion’s share of the losses, and the core bond and foreign-stock positions in the portfolios weren’t a whole lot of help.

One of the most notable aspects of the Saver portfolios’ performance last year is that the mutual fund portfolios, which consist largely of actively managed funds, beat their exchange-traded fund counterparts. That represents a turnabout from the period from 2019-21, when the ETF portfolios outperformed the mutual fund versions. The key reason is that the ETF portfolios have a higher weighting in U.S. large-growth stocks. As a result, they were better able to partake of that investment style’s long runup than were the mutual fund portfolios, but they also bore the brunt of the market’s recent losses. Even with the 2022 results factored in, the ETF portfolios are still comfortably ahead of the mutual fund portfolios over the past five years.

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

2022 Return: negative 16.55%

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

2022 Return: negative 15.18%

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

2022 Return: negative 12.84%

Performance Recap: After several years’ worth of lackluster performance relative to the broad U.S. market, the core U.S. equity holdings in the portfolios, Oakmark Fund, Primecap Odyssey Growth, and Vanguard Dividend Appreciation, lost a decent amount less than the market last year. That was a key reason that the Mutual Fund Saver portfolios managed to beat the analogous ETF portfolios last year. Moreover, the portfolios all bested similarly allocated portfolios composed of plain-vanilla total U.S. stock market, total international, and total bond market index funds.

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. Thanks to that fund’s extra interest-rate sensitivity in last year rising-rate environment, its 15% loss was worse than the Bloomberg U.S. Aggregate Bond Index and its intermediate-term core-plus peer group. That limited its utility as equity ballast in the portfolios. Indeed, it underperformed some of the equity holdings.

Over the past five years, the Aggressive and Moderate Saver portfolios underperformed simple, all-index-fund portfolios with the same asset allocations. The Aggressive Mutual Fund Saver portfolio gained 4.2% on an annualized basis over the past five years, versus a 4.8% gain for a similarly allocated portfolio composed entirely of total market index funds. The Moderate Mutual Fund Saver portfolio came a bit closer over the past five years but still underperformed an all index-fund portfolio: It returned 4.6% versus 4.7% for the plain-vanilla index fund mix. The Conservative Mutual Fund Saver portfolio managed to buck that trend: Thanks to its weighting in short-term bonds as well as its holdings in Vanguard Dividend Appreciation, it managed to best an all total-market index fund portfolio by a small margin over the past five years—3.4% versus 3.1% for the total market index-fund portfolio.

Portfolio Changes: None. All of the holdings in the mutual fund portfolios retain Morningstar Medalist ratings at this juncture.

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

2022 Return: negative 16.85%

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

2022 Return: negative 16.50%

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

2022 Return: negative 13.78%

Performance Recap: All three of the ETF Saver portfolios performed worse than their mutual fund counterparts in 2022′s rout, as noted above. Vanguard Total Stock Market ETF, which beat everything in sight from 2019 to 2021 and is one of the largest positions in all three of the portfolios, had a difficult year as the large-cap, high-growth stocks at the top of its portfolio fell back down to earth. Vanguard Small Cap Value performed better than the broad market, but its weighting was too small to meaningfully boost relative returns.

All three of the ETF Saver portfolios did beat analogous portfolios composed of plain-vanilla total market index funds in 2022, however. The portfolios’ dash of small-cap value exposure helped curb losses a bit, and the Conservative ETF portfolio benefited from its exposure to short-term bonds and short-term Treasury Inflation-Protected Securities.

Over the past five years, the ETF portfolios have a mixed track record versus total market index-fund portfolios that mirror their asset allocations. The Conservative ETF portfolio is a bit ahead of a blended total market index fund portfolio over the past five years—3.7% versus 3.4%. Meanwhile, the Aggressive and Moderate ETF Saver portfolios lag a total market index portfolio very slightly over the past five years: 5.5% for the Aggressive portfolio versus 5.6% for the total market fund portfolio, and 4.96% for the Moderate ETF portfolio versus 5.03% for the total market index portfolio.

Portfolio Changes: None.