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Performance report: Vanguard funds excel versus peers

April 30, 2014

Although global stock markets turned choppier after the new year began, results for the 12 months ended March 31, 2014, were admirable. The broad U.S. stock market advanced 22.58% over the fiscal year as corporate earnings were mostly solid and investors willingly paid more for those earnings. Also, the Federal Reserve's accommodative bond-buying program lent support and the U.S. economy steadily improved.

International stocks, in aggregate, weren't as fruitful, returning 13.00%. Most productive were the developed markets of Europe, helped by a general economic rebound, stimulus from the European Central Bank, and the euro's strengthening relative to the U.S. dollar. However, the developed markets of the Pacific region struggled to single-digit returns as Japan's stock market was uneven and the weaker yen hurt results.

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Emerging markets lost ground over the 12 months as concerns about China's weaker economy weighed on stocks and currencies in various developing countries.

The broad U.S. taxable bond market crawled to a return of –0.10% even after staging a rebound over the period's second half. International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned 3.24%. Money market and savings account returns remained capped by the Fed's target of 0%–0.25% for short-term interest rates.

Investors focus on the Fed

The Federal Reserve influenced the stock and bond markets over the past 12 months as investors anticipated and reacted to the Fed's statements and policies.

Last May, the markets were unsettled when former Federal Reserve Chairman Ben Bernanke said the central bank could begin to reduce its stimulative bond-buying program later in 2013. The U.S. bond market swooned and finished 2013 with a –2.02% return, its worst calendar year performance since 1994, as fixed income investors sold bonds in anticipation of further price declines.

Ironically, investors waded back into the bond market in January, when the Fed's tapering actually began. The Fed, determining the economy was strong enough to stand more on its own, continued to reduce its bond purchases through the first quarter under Janet Yellen, who succeeded Mr. Bernanke as Fed chair.

For the most part—and despite the recent rebound in bonds—cash flow at Vanguard and throughout the mutual fund industry, has tilted heavily toward stocks over the past 12 months. Vanguard Chief Investment Officer Tim Buckley provided some insight to this trend.

"We see that flows tend to follow returns," he said. "We saw record flows to equity funds this past year and bond flows dried up overnight. Unfortunately, this is not good investor behavior. Performance chasing undermines long-term returns."

Long-term results are commendable

Over longer time periods, Vanguard funds have generated excellent returns relative to competitors. As the table below illustrates, over the past 5- and 10-year periods, 75% and 92% of our funds, respectively, have outperformed the returns of their peer-group averages. The graph also shows the percentage of Vanguard funds in each major asset category that exceeded the average returns of their competing fund peer groups (as determined by Lipper) over the 1-, 3-, 5-, and 10-year periods ended March 31, 2014.

Vanguard funds that outperformed their peer group averages

(Periods ended March 31, 2014)

  1 year 3 years 5 years 10 years
All Vanguard funds: 65%
(227 of 348 Vanguard funds outperformed their peers; 19,233 funds in peer category for this period)
83%
(272 of 329 Vanguard funds outperformed their peers; 16,398 funds in peer category for this period)
75%
(198 of 264 Vanguard funds outperformed their peers; 13,704 funds in peer category for this period)
92%
(175 of 190 Vanguard funds outperformed their peers; 7,949 funds in peer category for this period)
Money market funds: 90%
(9 of 10 Vanguard funds; 956 funds in peer category)
100%
(10 of 10 Vanguard funds; 928 funds in peer category)
100%
(10 of 10 Vanguard funds; 869 funds in peer category)
100%
(10 of 10 Vanguard funds; 675 funds in peer category)
Stock funds: 64%
(140 of 219 Vanguard funds; 11,402 funds in peer category)
86%
(179 of 209 Vanguard funds; 9,654 funds in peer category)
81%
(135 of 166 Vanguard funds; 8,306 funds in peer category)
92%
(102 of 111 Vanguard funds; 4,964 funds in peer category)
Bond funds: 63%
(58 of 92 Vanguard funds; 3,537 funds in peer category)
71%
(60 of 84 Vanguard funds; 3,070 funds in peer category)
54%
(34 of 63 Vanguard funds; 2,169 funds in peer category)
90%
(46 of 51 Vanguard funds; 1,564 funds in peer category)
Balanced funds: 74%
(20 of 27 Vanguard funds; 3,338 funds in peer category)
88%
(23 of 26 Vanguard funds; 2,746 funds in peer category)
76%
(19 of 25 Vanguard funds; 2,360 funds in peer category)
94%
(17 of 18 Vanguard funds; 746 funds in peer category)

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Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
  • An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.
  • Diversification does not ensure a profit or protect against a loss.
  • Foreign investing involves additional risks, including currency fluctuations and political uncertainty. Stocks of companies in emerging markets are generally more risky than stocks of companies in developed countries.
  • The competitive performance data shown represent past performance, which is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
  • Market data source: Vanguard, based on market benchmarks. U.S. stocks represented by the Dow Jones U.S. Total Stock Market Float Adjusted Index. International stocks represented by the FTSE Global All Cap ex US Index. Bonds represented by the Barclays U.S. Aggregate Bond Index.
  • For the 1-year period ended March 31, 2014, 9 of 10 Vanguard money market funds, 58 of 92 Vanguard bond funds, 20 of 27 Vanguard balanced funds, 140 of 219 Vanguard stock funds, or 227 of 348 Vanguard funds outperformed their Lipper averages. For the 3-year period ended March 31, 2014, 10 of 10 Vanguard money market funds, 60 of 84 Vanguard bond funds, 23 of 26 Vanguard balanced funds, 179 of 209 Vanguard stock funds, or 272 of 329 Vanguard funds outperformed their Lipper averages. For the 5-year period ended March 31, 2014, 10 of 10 Vanguard money market funds, 34 of 63 Vanguard bond funds, 19 of 25 Vanguard balanced funds, 135 of 166 Vanguard stock funds, or 198 of 264 Vanguard funds outperformed their Lipper averages. For the 10-year period ended March 31, 2014, 10 of 10 Vanguard money market funds, 46 of 51 Vanguard bond funds, 17 of 18 Vanguard balanced funds, 102 of 111 Vanguard stock funds, or 175 of 190 Vanguard funds outperformed their Lipper averages. Results will vary for other time periods. Only funds with a minimum 1-, 3-, 5-, or 10-year history, respectively, were included in the comparison. (Source: Lipper, a Thomson Reuters Company.) Note that the competitive performance data shown represent past performance, which is not a guarantee of future results and that all investments are subject to risks. For the most recent performance, visit our website at vanguard.com/performance.
  • For more information about Vanguard funds, visit Funds, Stocks & ETFs, or call 877-662-7447, to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
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