A new year has begun, and investors have high hopes for 2020. After a stellar 2019, it'll be hard for the stock market to match its performance from last year. But for those who use mutual funds for their investing, sticking with a smart long-term investing strategy promises to pay dividends over the long haul.
Vanguard is one of the most popular mutual fund and exchange-traded fund companies in the market, with trillions of dollars of assets under management. One of its most attractive features is its emphasis on low costs, saving their shareholders money year in and year out on their fund investments with its index funds. Here, we'll look at three Vanguard mutual funds that have a lot of promise in 2020 and beyond.
The 3 top Vanguard mutual funds for 2020
|
Fund |
Assets Under Management |
2019 Return |
|---|---|---|
|
Vanguard Small-Cap Index (VSMAX) |
$95 billion |
27% |
|
Vanguard Total International Stock Index (VTIAX) |
$403 billion |
22% |
|
Vanguard Value Index (VVIAX) |
$89 billion |
26% |
Data source: Vanguard.
Looking for balance
It's always hard to figure out how to invest after an extremely strong year, but one strategy that many investors use is to look at the parts of the market that got left behind in the rally and tailor your asset allocation to emphasize those areas. Although all three of these stock funds had extremely good performance in 2019, they share one thing in common: They underperformed the S&P 500 Index as well as the 31% return from the Vanguard index mutual fund that tracks it.
Image source: Getty Images.
Yet these funds all cover very different parts of the market. The Vanguard Small-Cap Index Fund focuses on the smaller companies in the U.S. stock market, seeking to capture better returns from their greater long-term growth potential. Small-cap stocks tend to be volatile, however, and so it's not surprising that from time to time, they'll underperform their large-cap counterparts. With a 0.05% expense ratio, the Vanguard fund is a cheap way to get exposure to almost 1,400 stocks of small companies that span across every sector and industry in the market. In particular, if the U.S. economy continues to do well in 2020, then the largely domestically focused companies that show up in small-cap stock indexes have a much better chance of beating out their bigger rivals over the coming year.
Vanguard Total International looks beyond the borders of the U.S. for stocks that can deliver outsize returns for investors. The fund holds shares of nearly 7,500 different companies, with roughly 40% of the fund's assets invested in companies that hail from Europe, 30% from the Asia-Pacific region, and 20% from emerging market economies like China, India, and Brazil. Canadian companies make up the bulk of the remaining assets in the fund. With an expense ratio of 0.11%, Vanguard Total International is a bit more expensive than U.S.-focused mutual funds. But international stocks largely underperformed U.S. stocks in 2019, and many hope that a rebound will make the Vanguard fund reverse its fortunes in 2020 and beat out the S&P 500.
Finally, one reason 2019 was such a strong year for markets was that growth-oriented stocks continued to produce fantastic returns. That left value investors disappointed, but they still think that their day will come, and Vanguard Value Index is a solid way to play that portion of the market. Vanguard Value separates out value stocks from growth stocks using valuation-based metrics, holding more than 300 large-cap stocks in its portfolio. Financial and healthcare stocks have the biggest exposure in Vanguard Value, and if those areas can outperform in 2020, then the mutual fund should follow suit.
Invest smarter in 2020
Mutual fund investors shouldn't take for granted that they'll match 2019's strong returns, but looking for areas that other market participants have missed is a solid strategy. These three Vanguard mutual funds offer low costs and substantial diversification, and shareholders hope that they'll be able to return to full favor in 2020.