Vanguard Selected Value Fund Investor Shares VASVX

Vanguard Selected Value offers practical mid-cap value exposure.

Morningstar has updated the way we assess alpha opportunity for funds, which is a key component in our Morningstar Medalist Rating calculation. This strategy’s mutual fund Medalist Rating has dropped with this update despite no change in pillar ratings and fund costs.

While the three subadvisors managing this strategy—Pzena, Donald Smith, and Cooke & Bieler—have merit individually, the combination is less appealing. Pzena and Donald Smith both hunt for the cheapest stocks in the mid-cap value universe, though they differ in their deep-value approaches. Pzena, which manages 39% of the fund, looks for turnaround situations and how a stock can return to normalized earnings. Donald Smith adds spice to the fund in its 19% sleeve, often making highly concentrated bets in niche industries, a higher-risk, higher-reward style that adds volatility for investors here. Cooke & Bieler takes the remaining 39% and gives its analysts full buy-and-sell authority over their coverage area to hunt for competitively advantaged companies that represent relative value. Cooke & Bieler’s focus on owning companies that tend to carry wide Morningstar Economic Moat Ratings should, in theory, offset the volatility from Pzena’s lower-quality, turnaround approach and Donald Smith’s idiosyncratic exposure.

Each subadvisor’s unique perspective aids diversification, but the overall mix can provide volatile performance. The fund often doesn’t hold many stocks that two or more subadvisors own in their clone accounts. Donald Smith’s sleeve is the most unique and can lead to sizable bets in the aggregate portfolio. For instance, as of June 2025, that sleeve held 20 and 17 percentage points more in materials and financials than the Russell Midcap Value category benchmark, respectively. This has resulted in noticeable overweightings in certain sectors and industries in the Vanguard fund in recent times, particularly financials.

The subadvisors’ return profiles often lead to uneven performance. Since Cooke & Bieler joined in December 2019, its 11.3% annualized return through September 2025 beat both the category benchmark and the average mid-cap value Morningstar Category peer by 1.8 percentage points. But most of the fund’s success over this period is attributed to Donald Smith’s significant outperformance. And returns over the long haul have been more middling, particularly on a risk-adjusted basis from excess volatility.

While its three subadvisors each take a unique approach to value investing, their distinctive attributes aren’t optimal when combined, meriting an Average Process Pillar rating.

The bulk of this fund’s assets is allocated to deep-value managers. Roughly 60% of the fund sits with subadvisors Pzena and Donald Smith. They both screen the mid-cap universe for the lowest-priced stocks, but the similarity ends there. Pzena screens for the lowest quintile in terms of price/normalized earnings and looks for beaten-up companies across sectors that have the balance-sheet flexibility to solve temporary business issues. Donald Smith sifts for the bottom decile in terms of price/tangible book value and looks to make highly concentrated bets in companies with skilled management teams.

The third subadvisor, Cooke & Bieler, adds yet another flavor of value investing. It manages the remaining roughly 40% and utilizes a more flexible approach that ignores the index when hunting for stocks. It wants to own firms with strong competitive advantages and low debt levels that are trading at a discount to intrinsic value. The subadvisors’ contrasting styles give this fund diversification and flexibility, but most of the strategy’s fortunes rest with deep-value managers, most notably Donald Smith’s unique and concentrated bets, who often court volatility, low-quality portfolio metrics, and an erratic return profile.

While some of the overall risk profiles of the current subadvisors overlap, there are still unique bets in this portfolio. All three subadvisors are firmly value managers, according to the Morningstar Style Box, but Cooke & Bieler, which runs 39% of assets, tends to own stabler, more profitable companies than the Russell Midcap Value category benchmark. Pzena, which manages another 39%, tends to own more-volatile, lower-quality companies. These sleeves tend to perform well at different times and can offset each other (though not always), which leaves Donald Smith’s 19% allocation the key swing factor. Cash typically makes up 2% or more of the fund.

Donald Smith makes concentrated bets on niche industries, which can produce unique positioning in the aggregate portfolio. As of June 2025, Donald Smith’s sleeve held 20 and 17 percentage points more in materials and financials than the Morningstar Category index, respectively. The materials exposure was mostly a sizable bet on gold miners, while financials included a large collective stake in insurance-related companies. On top of that, Donald Smith also placed a decent share of assets in home builders in that individual sleeve.

Individual stock weightings are mostly kept in check within this fund’s 100-160 stock portfolio. Most top 10 holdings are generally less than 2%. However, both Donald Smith and Cooke & Bieler held AerCap in June 2025, which resulted in a 3.2% weighting for the stock in the Vanguard fund.

Each subadvisor has appeal individually, but the combined ensemble warrants an Average People Pillar rating.

Each subadvisor in this strategy employs a different team model. Pzena’s 39% sleeve is run by comanagers Benjamin Silver, John Flynn, and Evan Fox. Pzena has an ingrained culture of value investing, and the managers make use of the firm’s sizable central research team. After its deep-value approach had not been in favor for some time, the firm’s fund lineup has performed much better compared with value peers in recent years. Donald Smith runs a 19% sleeve and is overseen by Co-Chief Investment Officers Rich Greenberg and Jon Hartsel, plus three stock analysts. The small team is not overly concerning here, as it focuses its attention on a well-defined investable universe, but it could create succession issues in the future.

Cooke & Bieler provides this strategy with the most unique team structure. It was added to the lineup in December 2019 and manages the remaining roughly 40% of the fund. It employs a model where each of its eight analysts is also a portfolio manager for their respective sectors. The firm is thoughtful in creating a framework that avoids typical pitfalls in analyst-run strategies, such as sprawling portfolios and inflexible sector allocations. The analysts are diversified agewise, which alleviates succession concerns, a key reason Barrow, Hanley, Mewhinney & Strauss, the subadvisor Cooke & Bieler replaced, was dropped by Vanguard in 2019.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

The fund’s current lineup has produced decent results. Since Cooke & Bieler joined in December 2019, its 11.3% annualized return through September 2025 beat both the Russell Midcap Value category benchmark and the average mid-cap value category peer by 1.8 percentage points. Owing to niche positioning, investors should expect this fund to be more volatile than the benchmark and the typical peer, which quells risk-adjusted outcomes. Its volatility (as measured by standard deviation) was around 3 percentage points more volatile than both yardsticks over this period, though the fund still held a risk-adjusted edge (as measured by alpha) despite this. Most of the fund’s success since the three subadvisors combined is the result of Donald Smith, who has significantly outperformed.

Over longer horizons, this fund beats its peers but struggles to outpace the category benchmark. Since Pzena’s March 2014 addition, its 8.9% annualized return was 0.8 percentage points better than peers, but only 0.2 percentage points ahead of the benchmark. The fund’s edge was negligible on a risk-adjusted basis owing to additional volatility. It’s also tended to decline more than the benchmark and peers in market drawdowns of 10% or more. However, longer-term results include the contribution of former subadvisor Barrow Hanley, which managed most of the fund’s assets through December 2019.

Vanguard Selected Value Inv's Prospectus Adjusted Expense Ratio is 0.34% per year. It places it in the cheapest quintile of the Morningstar US Fund Mid-Cap Value Category, where the median fee is 0.88% per year. This cost positioning translates into a Medalist Rating Price Score of 2.08, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.