As investors follow through on their New Year's resolutions for 2020 by looking at financial providers, the Vanguard Group stands out with a strong reputation for excellence. Yet most investors think of Vanguard because of its extensive offering of index mutual funds and ETFs, espousing a low-cost approach that aims to match market performance rather than seeking to beat it.
However, Vanguard does have some prominent actively managed funds as well, and while they don't have the rock-bottom expenses of index funds, they nevertheless come at reasonable costs compared to their peers. Below, we'll look at three recent best-performing actively managed Vanguard funds to see how they're poised to perform in 2020.
The three best actively managed Vanguard mutual funds for 2020
|
Fund |
Assets Under Management |
2019 Return |
|---|---|---|
|
Vanguard Windsor (VWNDX 0.04%) |
$19.8 billion |
30% |
|
Vanguard Explorer (VEXPX -0.22%) |
$16.9 billion |
31% |
|
Vanguard U.S. Growth (VWUSX -0.31%) |
$26.8 billion |
33% |
Data source: Vanguard.
Searching for value
Vanguard Windsor has been in operation since 1958, but it's largely stayed true to its long-term investing strategy through good times and bad. The fund aims to find value stocks that market participants temporarily don't like, with the expectation that the underlying companies will see gradual improvement over time that will eventually win back investors to their side. Windsor recognizes that this approach can lead to turbulent share price movements and lengthy periods of underperformance when it takes longer than hoped for these companies to turn themselves around.
Windsor concentrates on large U.S. stocks, and currently, its largest concentrations are in the financial, healthcare, and industrial sectors. Over the long haul, the strategy has worked well for Windsor, justifying a reasonable expense ratio of just 0.31% for investor class shares and 0.21% for those who can make the $50,000 minimum investment for admiral class shares. When value stocks are in favor, Windsor performs quite well, and it's been a winner for longtime shareholders.
Image source: Vanguard Group.
Exploring the small-cap universe
At the smaller end of the stock market, Vanguard Explorer seeks out small and mid-sized companies that have greater potential for long-term growth. The fund, which started in 1967, holds a portfolio of more than 500 stocks. Rather than following a single unified strategy, Explorer employs multiple advisory companies, splitting up its assets and giving a portion to each advisor to invest. Current advisors include both fundamental and quantitatively oriented techniques, giving some strategic diversification as well.
Small-cap investing tends to be a bit more expensive than large-cap investing, and the 0.46% and 0.34% expense ratios for Explorer's investor and admiral class shares, respectively, show that higher cost. Nevertheless, with long-term performance that's been reasonably solid -- including a strong 31% showing in 2019 -- Explorer appeals to those looking for ways to invest in smaller stocks with the chance of outperforming the broader market.
Sticking with growth
Vanguard's oldest growth-oriented mutual fund dates back to 1959, with the simple objective of concentrating on blue chip stocks that have the best growth prospects. Because several of Vanguard's other early actively managed funds, such as Windsor, tended to focus on value stocks, Vanguard U.S. Growth was a useful tool to help diversify fund portfolios for those who didn't want to take an exclusively value-based approach.
With a greater-than-35% allocation to technology, U.S. Growth has participated in the recent run-up in the sector, posting above-average returns in 2019. Yet the fund is willing to go wherever it can find the best businesses with the ability to grow earnings over time. With costs of 0.39% for investor class shares and 0.28% for admiral class shares, active fund investors pay a lot less for Vanguard's growth offering than for counterparts at other fund companies.
Look active in 2020
Many mutual fund investors have chosen to stick with index funds, and matching the market's performance is good enough to help many people achieve their financial dreams. But if you prefer a more active approach, don't overlook Vanguard's active offerings. These three funds have long histories of solid performance and can fit well into investors' overall portfolios.