5 Best Performing Vanguard Mutual Funds of Q1 2016
Zacks Equity Research
Updated
Investors made very little from most mutual funds during the first quarter, with the major indexes recording their worst start to a year ever. The Vanguard mutual fund family collectively posted a modest first quarter return of about 1.37%, according to Morningstar. Among its sub categories, stock funds got dumped in the beginning of the year, though these funds got some relief in the latter half. Bond funds provided comfort once again, while gold funds were the clear winners. Emerging market funds stood out with positive returns, even though foreign funds struggled.
We shall discuss the best performing Vanguard mutual funds during the first quarter in this article. These funds also have the potential to grow in the long run. But before that let’s look at how such funds performed in Q1:
Stock Funds Bounce Back
It has been a topsy-turvy first quarter for the U.S. stock funds. Slump in oil prices to multi-year lows on abundant supply glut, poor numbers coming out from China and the Fed embarking on a rate hike cycle weighed on such funds for the first six weeks of the year. Vanguard Total Stock Market Index Investor (VTSMX), the largest fund by asset size, tanked 11.3% in the year-to-date frame (as on Feb 11). It was the fund’s worst performance since 2001.
Stocks did turn around during the latter half of the quarter as oil prices stabilized. The Fed’s move to raise rates slowly and eased global monetary conditions gave some relief to investors. Some positive news on the economic front was also reassuring. Odds of a recession this year in the U.S. declined largely due to a healthy household sector. Upbeat labor market conditions and low inflation helped consumers to register solid income gains.
VTSMX returned 0.5% for the quarter. Even though it is much less than around 6% it returned a quarter earlier, it is still commendable given the steep loss it witnessed in mid February.
Bond Funds Remain Steady
When stocks were tumbling, investors poured money into safe haven assets like bonds. The largest bond fund by asset size, Vanguard Total Bond Market Index Investor (VBMFX) returned 2.4% in the first quarter. This is in sharp contrast to the negative return of almost 0.8% the fund gave a quarter earlier.
Among the bond funds, long-term funds performed better than short term funds. Inflation, the scourge of long-term bonds remained weak, helping these funds to post better results. Inflation remained soft amid low commodity prices and tepid global economic growth.
Gold Funds Are Winners
Like bonds, companies that focus on gold did exceedingly well in the first quarter. Gold also has a reputation of being a safe asset. The SPDR Gold Shares (GLD) that tracks the price of gold soared almost 16% in the first quarter. The moves from central banks in Europe and Japan to provide more stimulus measures to invigorate their economies along with Fed’s pledge to hike rates slowly boosted gold prices. Major fundamental issues like demand surpassing supply continue to increase the allure for gold.
Gold mining stocks witnessed stupendous growth in the first quarter, with the average coming in at 41.7%. The biggest gold-mining fund by assets, Vanguard Precious Metals and Mining Investor (VGPMX), surged 29.1% in the first quarter. A quarter earlier, it had given a negative return of 10.9%.
Foreign Funds Struggle
International stock funds had given promising returns in the past year. All those returns, however, fell short in the first quarter. Chinese stock funds were the worst performer, while Japanese and European funds did not find it easy either.
The one that stood out among them was emerging market funds. In fact, March turned out to be the best month for emerging market equities since Jan 2012. Fed’s dovish stance, a weaker dollar and a rebound in oil prices boosted such funds. The Vanguard Emerging Markets Stock Index Investor ( VEIEX) fund gained 5.2% in the first quarter. The same fund had posted a negative return of 5.3% in the earlier quarter.
Top 5 Vanguard Mutual Funds to Invest In
As discussed above, Vanguard funds having exposure to precious metals and mining by far gave the best returns in the first quarter. Stock funds did make a comeback in the latter half of the quarter, while bond funds provided stable returns. Among foreign funds category, emerging market funds deserve special attention for their encouraging returns.
In addition to this, Vanguard funds posted a net inflow of $28.9 billion in March, higher than the other nine largest fund companies by asset under management combined. These factors make Vanguard funds the best investment choice. Vanguard is already the world’s largest investment management company and has crossed the lofty milestone of $3 trillion in assets under management.
For now, we have chosen five Vanguard funds that have given best returns in the first quarter. Incidentally, these funds also boast strong fundamentals that will help them gain in the future as well. These funds possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have minimum initial investment within $5000 and carry a low expense ratio.
Vanguard Energy Investor (VGENX) invests a large portion of its assets in the common stocks of companies principally engaged in activities in the energy industry. VGENX’s first quarter return was 7.8%. Annual expense ratio of 0.37% is lower than the category average of 1.52%. VGENX has a Zacks Mutual Fund Rank #1.
Vanguard Long-Term Investment-Grade Investor (VWESX) invests the majority of its assets in intermediate- and long-term investment-grade securities. VWESX’s first quarter return was 5.3%. Annual expense ratio of 0.21% is lower than the category average of 0.87%. VWESX has a Zacks Mutual Fund Rank #2.
Vanguard Dividend Appreciation Index Investor (VDAIX) employs an indexing investment approach designed to track the performance of the NASDAQ US Dividend Achievers Select Index. VDAIX’s first quarter return was 4.4%. Annual expense ratio of 0.19% is lower than the category average of 1.01%. VDAIX has a Zacks Mutual Fund Rank #2.
Vanguard High Dividend Yield Index Investor (VHDYX) employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index. VHDYX’s first quarter return was 3.4%. Annual expense ratio of 0.16% is lower than the category average of 1.10%. VHDYX has a Zacks Mutual Fund Rank #1.
Vanguard Equity-Income Investor (VEIPX) invests a major portion of its assets in equity securities of mid and large size companies. VEIPX’s first quarter return was 2.8%. Annual expense ratio of 0.26% is lower than the category average of 1.10%. VEIPX has a Zacks Mutual Fund Rank #1.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
