Vanguard funds are top of mind when it comes to index investing. After all, founder John Bogle basically created the idea of passive investing and brought index funds to masses back in the 1970s.
But Vanguard’s actively managed funds should be on equal footing with their passive brethren.
One of the biggest hurdles to actively managed mutual funds and exchange-traded funds (ETFs) is something called a “fee hurdle.” Historically, active funds cost more to run than a passive index-tracking fund. Because of this, an actively managed fund must earn more than its fees in order to bring investors a return. So even if a fund does beat the underlying index or benchmark, the higher fees will often produce lower returns.
But for Vanguard, low-cost investment management is in its blood. As a result, Vanguard’s actively managed funds feature rock-bottom fees just like its passive investment options. This allows many of its active funds to offset the fee hurdles that other firms encounter and gives investors the opportunity to benefit from active management outperformance at lower costs.
With that in mind, here are five of Vanguard’s active funds to own for the long term. The funds featured here cover a variety of strategies, so there’s likely a low-cost option that aligns with your goals, no matter what type of investor you are.
Data is as of March 10. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
Vanguard Selected Value Fund
- Fund category: Mid-cap value
- Assets under management: $6.7 billion
- Yield: 1.2%
- Expense ratio: 0.32% annually, or $32 per $10,000 invested
- Minimum investment: $3,000
One area where active management can win over passive is in the world of smaller stocks. Major investment houses, analysts and institutional investors tend to ignore small- and mid-cap stocks. As a result, there can be plenty of pricing inefficacies that smart managers can exploit. This is particularly true when focusing on value stocks in this region.
The top-performing Vanguard Selected Value Fund (VASVX, $29.66) looks to cash in on this fact.
VASVX focuses on mid-cap stocks, or those with market caps within the $2 billion to $10 billion range. Managers at the fund then use fundamental analysis to find stocks that are undervalued and out of favor, trading at below-average levels for various financial metrics such as earnings or book value. What you get is a one-two punch of success.
Returns for the fund tend to go through periods …….