Vanguard Positive About Foreign Equities, 5 Best Picks

Apart from being one of the leading investment management companies in the world, Vanguard is also popular among retail investors for its low-cost funds. The company offers nearly 300 low-cost funds that enable it to attract a significant portion of individual investor assets.

As of Sep 30, 2017, the company had over $4.5 trillion of assets under management. Founded by John C. Bogle in 1975, the company now offers asset management and financial planning services to around 20 million investors throughout the globe.

While a bulk of Vanguard’s assets are invested in index funds, around 30% of these are focused on the actively managed ones. Strong performance by most of the mutual funds of this fund family, particularly in the tech and healthcare sectors in the year-to-date period, calls for investment in some of the major Vanguard mutual funds.

Vanguard’s 2018 Market Outlook

Vanguard’s investment outlook for 2018 appears modest. The fund house expects non-US equity markets to overshadow U.S. equity markets in the coming years. While the company’s founder, Jack Bogle, expects the domestic equity markets to return an average 4.1% in the next 10 years compared with 10% in the last 10, he expects non-U.S. equity markets to return an average of 6.3% in the next 10 years compared with 5.9% in the last 10.

This claim is supported by the fact that there would be a likely increase in domestic interest rates by 2018 end. Moreover, it is also possible that the Fed might hike the rates three more times after an expected hike in December 2017. Such a hike certainly makes investment in domestic equities less attractive to foreign equities. Further, the ECB has delayed the rate hike by two years. Finally, Asian as well as other emerging markets are going strong. Therefore an investment in non-U.S. equities would be more profitable.

However, U.S. equity markets have not lost their sheen altogether. Trump’s tax reforms will boost the domestic equity market and improve returns on investment. The Bill trims the corporate tax rate from 35% to 20%, marking the biggest one-time drop in big business tax rates ever.

Lower domestic tax rates will also result in repatriation of hundreds of billions of dollars in cash. This could help in boosting the economy and lead to a rise in interest rates. Higher interest rates boost bank profits by increasing the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities. (Read More)

Why Vanguard Mutual Funds?

The biggest fund family of the United States has successfully attracted investments from more than 20 million investors on the back of its low-cost approach. This approach helped most of the Vanguard index funds to perform better than their peers. Along with index funds, there are plenty of actively managed Vanguard mutual funds that carry low expense ratios.

Unlike other fund families, Vanguard doesn’t hire its own employees to manage its funds. Instead, the biggest fund family of the world hires managers from outside. This makes it easier to replace the fund manager concerned in case of poor performance. This in turn helps to control the overall cost of the actively managed Vanguard funds.

As per the editor of The Independent Adviser for Vanguard Investors newsletter, Dan Wiener, out of 18 domestic, non-sector, actively managed stock and balanced funds, 14 performed better than the S&P 500 index in the last 15 years. One of the major reasons for this stupendous run is Vanguard’s ability to consistently offer low-cost funds. (Read More)

Sectors Which Boosted Gains for Vanguard

Vanguard invests in a variety of sectors that are sensitive, cyclical and defensive. From the sensitive sectors, technology is the largest holding. Among the cyclical sectors, the fund family invests the maximum in the financial sector, while among the defensive sectors it invests heavily in healthcare.

Financials Select Sector SPDR (XLF) climbed 17.9% in the last one year and was the biggest gainer among the S&P 500 sectors. Also, the financials mutual fund posted a positive one-year return of 31.1%, according to Morningstar. Also, technology and healthcare mutual funds registered positive one-year returns of 34.4% and 23.3%, respectively.

Buy These 5 Funds

The fund family has done particularly well in the tech and healthcare sectors in the year-to-date period. Further, Vanguard expects the non-U.S. equity market to grow in 2018. This makes funds from the Vanguard portfolio a hotbed for money.

Here, we have selected five Vanguard mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

These funds have encouraging year-to-date (YTD) and one-year annualized returns. Also, each of these funds has a low expense ratio and minimum initial investment is within $5000.

Vanguard International Growth Investor VWIGX invests predominantly in stocks of companies located outside the United States and is expected to diversify its assets in countries across developed and emerging markets. The fund focuses mainly on those companies that have above-growth potential.

VWIGX has an annual expense ratio of 0.45%, which is below the category average of 1.19%. The fund’s respective returns are 39.1% and 39.9% for the YTD and one-year annualized periods.

Vanguard Global Equity Investor VHGEX uses bottom-up stock analysis to invest a large share of its assets in equities of companies all over the globe. It invests in both growth and valuecompanies irrespective of their market capitalization. The fund also diversifies its allocation across different industries.

VHGEX has an annual expense ratio of 0.48%, which is below the category average of 1.18%. The fund has given respective returns of 24.6% and 25.2% during the YTD and one-year annualized periods.

Vanguard Selected Value Fund Investor Shares VASVX seeks growth of capital and income for the long run. VASVX invests its assets heavily in undervalued stocks issued by mid-cap domestic companies. Undervalued stocks are those that trade below the book value. The fund uses multiple investment advisors.

VASVX has an annual expense ratio of 0.35%, which is below the category average of 1.11%. The fund’s respective returns are 16.4% and 16.6% for the YTD and one-year annualized periods.

Vanguard Value Index Investor VIVAX invests nearly all its assets in stocks of companies that are included on the CRSP US Large Cap Value Index. VIVAX seeks to replicate the performance of the index by investing a proportion of its assets in each stock as its weighting in the index.

VIVAX has an annual expense ratio of 0.18%, which is below the category average of 1.03%. The fund has returned 14.8% and 16.5% for the YTD and one-year annualized periods, respectively.

Vanguard Growth Index Investor VIGRX seeks long-term capital growth by investing in equity securities of large-cap companies. VIGRX employs an indexing investment approach. The fund aims to track the performance of the CRSP US Large Cap Growth Index by investing most of its assets in stocks that make up the index.

VIGRX has an annual expense ratio of 0.18%, which is below the category average of 1.12%. The fund’s respective returns are 25.5% and 26.8% for the YTD and one-year annualized periods.

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