Performance report: Robust markets propelled Vanguard funds
November 01, 2013
Global stock markets recorded strong results for the 12 months ended September 30, 2013, as both U.S. stocks and their international counterparts climbed through most of the fiscal year.
The broad U.S. stock market returned 21.44% during the period. Investors' risk tolerance grew over the year as the economy shuffled forward with help from the housing rebound and some progress in the labor market. While the Federal Reserve's monetary policy supported returns, corporate profits waned a bit.
International stocks pursued a different, albeit somewhat less productive route, with a return of 16.66% for the 12 months as an autumn slide interrupted the steady rise. Returns in the developed markets of Europe and the Pacific region exceeded those in the United States, but emerging markets lagged as the outlook for growth deteriorated and inflation concerns arose in certain larger economies.
Bonds, which clung to slightly positive returns for the first half of the period, reversed course in May as investors anticipated reductions in the Fed's stimulative bond-buying program. Although bonds trimmed their losses in September when the Fed said it would continue the purchases, the broad U.S. taxable bond market returned –1.68% for the fiscal year. The yield of the 10-year Treasury note closed at 2.64%, up from 1.65% a year earlier. (Bond yields and prices move in opposite directions.)
Just about all types of equity funds benefited from the rise of various stock markets, while most bond funds suffered negative returns. Vanguard funds performed better than the average of their industry peers. For the 12-month period, 58% of Vanguard funds surpassed the average returns of their respective peer groups. (This is based on data from Vanguard and Lipper, a Thomson Reuters Company.)
More on performance
Comprehensive performance information for all Vanguard mutual funds and ETFs is at your fingertips.
Recognize index, active differences
Vanguard's fund lineup, of course, contains both index and actively managed funds, and there's a very clear difference between the two investments.
The objective of an index fund is to track a specific market benchmark. As a result, investors should expect an index fund to underperform its targeted benchmark by the amount of its expenses. Conversely, actively managed funds follow strategies to achieve an investment goal, usually to exceed a target index.
In recent years, the lines between index and active have become blurred in parts of the industry with the growing popularity and adoption of alternative and fundamental indexing products. Traditional indexes are weighted based on the market capitalization of the companies they invest in, and the "alternatives" don't allow investors to "own the market" or track it.
"The search for outperformance has been the age-old objective of traditional active managers," said Vanguard Chief Investment Officer Tim Buckley. "But if this were as simple as writing some rules on a napkin and investing accordingly, we'd expect to see a robust history of outperformance across the board. In reality, we've seen the opposite.
"We believe that when you buy an index fund, you expect to own the market. Yet a rules-based, non-cap-weighted strategy doesn't give you that kind of exposure. You are, in fact, betting against the market—or at least some segment of it."
Whether you invest in an index fund or an actively managed fund, it's important you understand the portfolio's components and strategy, its costs, and how it fits into your long-term program—that was created based on your own goals, time horizon, and risk tolerance.
Long-term results are commendable
Vanguard funds have also produced solid returns relative to competitors over longer time periods. As the table below illustrates, over the past 5- and 10-year periods, 81% and 91% of our funds, respectively, have outperformed the returns of their peer-group averages. The table 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 September 30, 2013.
Vanguard funds that outperformed their peer group averages
(Periods ended September 30, 2013)
|1 year||3 years||5 years||10 years|
|All Vanguard funds:||58%
(201 of 348 Vanguard funds outperformed their peers; 18,748 funds in peer category for this period)
(267 of 308 Vanguard funds outperformed their peers; 16,354 funds in peer category for this period)
(215 of 265 Vanguard funds outperformed their peers; 13,418 funds in peer category for this period)
(149 of 163 Vanguard funds outperformed their peers; 7,437 funds in peer category for this period)
|Money market funds:||100%
(10 of 10 Vanguard funds; 970 funds in peer category)
(10 of 10 Vanguard funds; 939 funds in peer category)
(10 of 10 Vanguard funds; 868 funds in peer category)
(10 of 10 Vanguard funds; 675 funds in peer category)
(117 of 220 Vanguard funds; 11,107 funds in peer category)
(166 of 187 Vanguard funds; 9,665 funds in peer category)
(138 of 165 Vanguard funds; 8,150 funds in peer category)
(81 of 90 Vanguard funds; 4,625 funds in peer category)
(53 of 89 Vanguard funds; 3,427 funds in peer category)
(66 of 83 Vanguard funds; 3,017 funds in peer category)
(43 of 63 Vanguard funds; 2,140 funds in peer category)
(46 of 50 Vanguard funds; 1,530 funds in peer category)
(21 of 29 Vanguard funds; 3,244 funds in peer category)
(25 of 28 Vanguard funds; 2,733 funds in peer category)
(24 of 27 Vanguard funds; 2,260 funds in peer category)
(12 of 13 Vanguard funds; 607 funds in peer category)
- 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 September 30, 2013, 10 of 10 Vanguard money market funds, 53 of 89 Vanguard bond funds, 21 of 29 Vanguard balanced funds, 117 of 220 Vanguard stock funds, or 201 of 348 Vanguard funds outperformed their Lipper averages. For the 3-year period ended September 30, 2013, 10 of 10 Vanguard money market funds, 66 of 83 Vanguard bond funds, 25 of 28 Vanguard balanced funds, 166 of 187 Vanguard stock funds, or 267 of 308 Vanguard funds outperformed their Lipper averages. For the 5-year period ended September 30, 2013, 10 of 10 Vanguard money market funds, 43 of 63 Vanguard bond funds, 24 of 27 Vanguard balanced funds, 138 of 165 Vanguard stock funds, or 215 of 265 Vanguard funds outperformed their Lipper averages. For the 10-year period ended September 30, 2013, 10 of 10 Vanguard money market funds, 46 of 50 Vanguard bond funds, 12 of 13 Vanguard balanced funds, 81 of 90 Vanguard stock funds, or 149 of 163 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.