Vanguard PRIMECAP Fund Admiral Shares VPMAX

Vanguard Primecap continues to benefit from its outstanding subadvisor and rock-bottom fees. But flaws in the investment team’s sell discipline warrant a downgrade of the strategy’s Process Pillar rating to Above Average from High.

This fund, which has spent time in both the large-blend and large-growth Morningstar Categories over the past 20 years, is one of six mutual funds overseen by subadvisor Primecap Management that stands out in many positive ways. Primecap is led by investors, not marketers, and keeps its focus on research and portfolio management. Its investment team is well-stocked with industry veterans and newcomers hired for their intellect, curiosity, and range of professional perspectives. The firm is mindful of company valuation, prizes unconventional thinking, and pursues stocks off the beaten path.

The firm is also unique for its extreme patience. It often holds stocks for a decade or more, a rare trait that can pay off when it backs firms with competitive moats, rising earnings, or skilled leadership. Top holding Eli Lilly is a case in point. A long-term orientation also works when a company suffers a steep share-price drop, but its troubles are fixable and fleeting.

But patience has been a double-edged sword for Primecap, whose convictions have sometimes hardened into obstinacy even as investment theses flopped. Corporate executives can prove themselves poor stewards; rivals sometimes erode once-mighty franchises; companies’ sales slide; debt piles up; or a bargain-basement takeover ends the growth story that Primecap was banking on. In these cases, holding firm becomes damaging as the stocks’ prices fall and potential gains elsewhere are foregone.

Mistakes like these explain much of the firm’s lackluster returns over the past five years. It has also faced some stylistic headwinds, with a contrarian bent and slight bias toward smaller-cap companies that have lagged in a market enthralled by momentum and mega caps.

Even so, the firm’s longer-term track record is admirable, helped by its research-focused culture and Vanguard’s low expense ratio. For investors seeking a differentiated approach to large-cap investing, this fund remains a worthy holding.

The fund still benefits from its investment team’s deep fundamental research and unconventional thinking, but weakness in its sell discipline now tempers its edge. Its Process Pillar rating drops to Above Average from High.

As before, Primecap parcels the fund’s assets into independently managed sleeves. Five of its most experienced investors run the bulk of its assets. They hunt firms whose long-term prospects the market undervalues—either because the growth story is nascent, clouded by controversy, or is simply off other investors’ radar. They are benchmark-agnostic and long-term-oriented, often holding stocks for a decade or more.

The managers’ patience is a plus but can become a liability. They can be too slow to cut companies whose competitive edge has dulled, financials have weakened, or growth stories have ended. These have dragged on the portfolio’s returns and imposed steep opportunity costs. The portfolio managers will occasionally sell outright amid serious company-specific setbacks. Mostly, however, they reserve trimming for holdings whose valuations have stretched.

Primecap’s managers calibrate their stock picks to each of their funds' unique attributes, including the size of their asset base. The firm’s six US open-end funds form three strategic pairs. Vanguard Capital Opportunity and Primecap Odyssey Aggressive Growth focus on firms with rapid earnings growth potential, though the latter holds more small caps. Primecap Odyssey Growth and this fund focus on stocks with above-average growth potential, though the former has more in small caps and less in large caps. Vanguard Primecap Core and Primecap Odyssey Stock emphasize companies with mispriced assets or turnaround potential, which yields portfolios with somewhat more value-leaning characteristics.

This fund's roughly 170-stock portfolio is a blend of its five managers' separately run sleeves that broadly diversifies across stocks but distinguishes the fund through its unusual stylistic and industry allocations.

A large chunk of the fund’s assets (about 25%) sits in biotech and pharma stocks, as defined by the Global Industry Classification Standard. That includes Eli Lilly, Amgen, and AstraZeneca, which are among the top 10 holdings. Those industries amount to around 5% of the broad US market.

It is also willing to make other industry bets. The fund’s holdings in semiconductors and airlines have long been among the category’s bigger stakes. As of March 2025, they amounted to 14% and 4% of assets, respectively.

Its underweightings and omissions are just as notable. It recently held 8% in financials versus the broad market’s 14% share. It held a negligible stake in Apple, the market’s biggest constituent. And it owns little in defensive sectors such as consumer staples and utilities.

The fund’s diversification across the value-growth spectrum is notable. Stylistically flexible, it has stood out since 2016 for its big helpings of both value stocks and growth stocks (per Morningstar's classification).

Primecap Management's five primary portfolio managers and dozen or so equity analysts are among the industry's most capable. The team includes a mix of seasoned and more junior members, and its managers invest substantially alongside shareholders. The fund earns a High People Pillar rating.

Firm co-founder Theo Kolokotrones has run a portion of the fund since June 1985, six months after its inception. Joel Fried, Al Mordecai, and Mohsin Ansari joined at year-end 1988, 1999, and 2007, respectively; James Marchetti started in early 2015. Kolokotrones is the veteran of the group, with over 50 years of industry experience; Marchetti, its most junior member, has around 20 years of industry experience, all at Primecap.

The analysts, whose industry experience ranges from less than one year to 20 years, divide coverage by sector and get a small portion of assets to pick stocks in their areas of expertise. The firm typically recruits standouts from top business schools, especially those without an investing background so that it can get diverse perspectives and holds each to high standards. Voluntary departures are rare.

Each Primecap manager owns all six of the firm’s US open-end funds. Across the strategies, every manager invests at least USD 6 million of their personal wealth.

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 boasts an outstanding long-term track record that stretches back to the mid-1980s when the longest-tenured manager Theo Kolokotrones started.

Over the past decade—when all but one of the current team’s portfolio managers were continuously at the helm—the fund’s investor share class gained 12.2% annualized, among the best-performing third in the large-blend category.

Big bets on biotech and semiconductors, which the fund has continuously favored, can sway the fund’s shorter-term results. For instance, the fund’s returns can thrill or disappoint depending on biotech’s performance relative to the market. But the team has also demonstrated skillful stock-picking over the long haul.

Its picks generally underwhelmed over the past five years, however. Within hardware, it has preferred the Sony Group over the much stronger-performing Apple. Among online retailers, the firm emphasized Alibaba over Amazon. Adobe, a fairly large position for more than 20 years, has recently struggled. And although the strategy did well to hold an above-index stake in semiconductors, it preferred Intel and Micron over the biggest winners, Nvidia and Broadcom.

Vanguard PRIMECAP Adm's Prospectus Adjusted Expense Ratio is 0.27% per year. It places it in the cheapest quintile of the Morningstar US Fund Large Blend Category, where the median fee is 0.67% per year. This cost positioning translates into a Medalist Rating Price Score of 1.55, 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.