- 6 of Vanguard's Target Retirement funds have consistently ranked among the very best performing funds in their sector.
- The Vanguard LifeStrategy 80% Equity fund outperformed 91% of competing funds within the same sector over the past 1 year.
- Our analysis identifies impressive performance from a range of Vanguard funds, but the majority 52.7% have a history of poor performance
Since their inception in 1975, Vanguard has grown to become the 2nd largest fund management firm in the world with £5.9 trillion of assets under their management.
They are also one of the most popular fund managers in the UK, with their range of multi asset, actively managed and passive funds among the largest on the market. But which of their funds perform the best? and how do their actively managed funds fare compared to their low cost tracker funds?
In this report, we analyse the performance of 167 Vanguard funds alongside all other funds within their respective sectors and provide each fund with an overall performance rating between 1 and 5 stars depending on how they rank within their relevant Investment Association sectors for.
Vanguard Fund Performance Review
From the 167 Vanguard funds assessed in this report 5 were from the popular Vanguard LifeStrategy range of ready made portfolios, which combined manage huge £42 billion of client money. A further 11 funds analysed were from their target retirement range, which combined have £2.3 billion of funds under management.
Our analysis of all 167 funds identified that 52.7% received a poor performing 1 or 2 star rating with the 27% receiving a modest 3 star rating. The remaining 34 funds have consistently outperformed the majority of their peers over the 1, 3 & 5 year periods analysed with these funds receiving a very impressive 4 or 5 star rating.
Vanguard - The Creator of Passive Investing
Jack Bogle, the founder and former chairman of Vanguard who passed away in 2019 at the age of 89, is renowned for creating the world's first index fund—an investment vehicle linked to a benchmark such as the S&P 500, rather than being actively managed by human portfolio managers.
Bogle's investment philosophy centred on "buying the market" as cost-effectively as possible, believing that the long-term benefits of reducing fees and expenses would outweigh other factors. This approach has propelled Vanguard to become an investment powerhouse, managing in excess of £5.9 trillion in assets.
In 1976, Bogle and Vanguard launched the fund now known as the Vanguard 500 Index, which was borne out of the simple insight that by buying and holding the stock market at low cost, investors could do better than most active managers. A year later Vanguard started selling its funds directly to investors. Today, Vanguard have more than 160 funds available to UK investors with the majority following an index tracking strategy.
Best Vanguard Passive Funds
From Vanguard's extensive range of Passive funds we have identified a selection that have consistently outperformed their actively managed peers, ranking among the very best performing funds in their sectors over the past 1, 3 & 5 years.
Vanguard Small Cap Value
Among the best performing funds in their range was the Vanguard Small Cap Value fund. This passively managed fund tracks the CRSP US Small Cap Value Index, offering investors exposure to a diverse range of smaller companies with value characteristics.
The fund's performance has been impressive, significantly outpacing its sector averages across various time frames. Over the past year, it delivered a robust 17.73% return, compared to the sector average of 8.58%. Its 3 year performance of 22.23% is particularly noteworthy, especially when contrasted with the sector's negative return of -0.78%. The fund's 5 year growth of 60.38% further underscores its strong long-term performance, more than doubling the sector average of 27.9%.
These results highlight the fund's effectiveness in capturing the potential of small-cap value stocks while maintaining a low-cost structure. Combined with low annual charges of just 0.07%, this fund has delivered exceptional results for its investors to date.
Vanguard FTSE Developed World UCITS ETF
The Vanguard FTSE Developed World UCITS ETF currently manages £4.5 billion of client money, making it one of the most popular funds in its sector. This index fund aims to track the performance of the FTSE Developed Index, which has been a strategy that has delivered exceptional returns for investors comparative to all other funds in the Global sector - which predominantly consists of actively managed funds.
Over the past 1, 3 & 5 years this fund has returned growth of 23.48%, 32.96% and 75.83%, each of which were well above the sector average of 17.22%, 17.08% and 56.22%. As a passive managed fund it has a very low ongoing charge of 0.12%. To put this into context, the average annual charge of funds within the IA Global sector is 0.83%.
Vanguard Active Funds
Although Vanguard has a global reputation for creating and providing passive funds, the firm also manages over £334 billion in actively managed equity assets globally and has been offering actively managed funds, which unknown to many, makes them one of the world’s largest active managers.
Vanguard uses a range of external and internal fund managers to manage their active fund range with 3 core principles in mind.
Costs - An ongoing commitment to driving down costs
Talent - Have access to a vast talent pool of fund managers whether this means outsourcing or managing funds internally
Patience - Their active funds are designed for the long term investors.
Although Vanguard has been a vocal proponent of passive investing and the majority of their business is based on selling their passive products they have also admitted that the value of quality active funds is hard to ignore.
The typically lower cost of passive investing is one of the key benefits that Vanguard uses in promoting their passive funds but in promoting their active fund range they make it clear that quality managers, although typically more expensive, can make up more in added growth than any savings that can be made from lower cost, tracker funds.
They believe that successful active management is driven by the combination of cost, top talent, and patience. While lower fees should reduce the hurdles necessary to outperform a benchmark, low costs alone cannot guarantee success.
Although many active managers have underperformed their benchmarks there are a large range of high quality active funds on the market - with the top performing funds across all sectors coming from these active funds.
Download The Full Report & Access The Performance of 167 Vanguard Funds
Best Vanguard Active Funds
Our analysis identified that Vanguard’s range of actively managed funds have struggled to match their passive funds for performance, with the majority of their active funds underperforming.
Vanguard Global Equity Income Fund
The Vanguard Global Equity Income Acc fund adopts an actively managed strategy which is to invest in a diversified portfolio of global dividend-paying stocks. The fund has a competitive ongoing charge of 0.48%, which is considerably lower than the 0.94% sector average.
The fund's performance has consistently outpaced its sector averages across various time horizons. Over the past year, it delivered a solid 16.71% return, surpassing the sector average of 15.63%. Its three-year performance of 35.13%, exceeded the sector's 25.55%. The five-year growth of 55.48% also outperformed the sector average of 50.22%.
Vanguard SustainableLife 60-70% Equity Fund
The Vanguard SustainableLife 60-70% Equity fund seeks to achieve its investment objective by investing in a combination of shares of companies (between 60-70% of the portfolio, with an expected allocation of 65%) and bonds (between 30-40% of the portfolio, with an expected allocation of 35%) selected in accordance with Vanguards Sustainability Policy. This policy implores the funds manager to excludes investments that fall within an exclusions policy (which excludes companies involved in and/or deriving revenue (above certain thresholds) from tobacco, thermal coal, oil sands, nuclear / controversial weapons), and then considers each company’s alignment to the Fund’s net zero emissions targets and conducts an assessment of good governance standards.
Over the past 3 & 5 years this fund has been one of the top performing funds in the IA Mixed Investment 40-85% Shares sector with returns of 17.05% and 38.52% considerably outpacing the sector average of 8.47% and 28.08%. However, over the past 12 months the fund has struggled for performance with 1 year returns of 11.78% falling below the 13.11% sector average for the period.
Vanguard LifeStrategy Funds
Vanguard launched their popular range of 5 LifeStrategy funds with the aim of making investing simple. These five funds act as ready-made portfolios, and each has different levels of potential risk and return.
LifeStrategy range: a snapshot
- Each fund created with 6,000 to around 20,000 underlying holdings
- Globally diversified in equities and bonds – helping to reduce risk
- Invested in the full range of sectors including technology, media and energy
- Each of the five LifeStrategy funds offers a different blend of shares and bonds – made up of Vanguard index funds and ETFs.
- Each LifeStrategy fund will have between 6,000 and 20,000 underlying holdings across a full range of sectors and industries, and their low-cost structure means investors only pay 0.22% in ongoing charges (OCF) each year, with no entry or exit fees.
Similar to BlackRock Consensus funds, the risk profile of each LifeStrategy fund ranges from 3 to 7, with the lowest risk being the LifeStrategy 20% equity, which has a risk profile of 3 and is made up of 80% equities and 20% bonds. The highest risk being the LifeStrategy 100% equity, which unsurprisingly holds up to 100% in equities.
Combined the 5 LifeStrategy funds hold almost £14 billion of client funds, with the mid-range Vanguard LifeStrategy 60% Equity fund proving to be the most popular among investors.
Vanguard LifeStrategy 20% Equity fund
The Vanguard LifeStrategy 20% Equity fund has the lowest potential for risk and currently it has a risk category of 3 out of 10. As the name suggests, this fund is made up of 20% equities with the remaining 80% held in lower risk bonds.
Over the past 5 year period this fund underperformed the sector average and ranked 47th out of 56 funds in its sector with disappointing growth of 2.44%, which was less than half that of the sector average.
Vanguard LifeStrategy 40% Equity fund
With a risk rating of 4 out of 10, the Vanguard LifeStrategy 40% Equity fund assumes a higher weighting in equities and thus is considered to have a slightly higher risk rating.
This fund is weighted to contain 40% equities (mainly US and UK equities) and 60% bonds and it sits within the IA Mixed Investment 20-60% Shares sector. Similar to the 20% equity fund, this fund has also struggled for competitive performance. Over the past 5 years this fund ranked a poor 96th out of 149 funds with growth of 13.86%, which was some way below the 16.04% sector average.
Vanguard LifeStrategy 60% Equity fund
The largest and most popular in the LifeStrategy range is the 60% Equity fund. With a risk rating of 5, this mid-range fund appeals to many balanced investors who are willing to assume marginally higher risk for the potential of greater returns. Over the past 1, 3 & 5 years this fund has returned growth of 13.31%, 8.36% and 27.54%. While slightly below the sector average it is important to note that this fund has a lower equity strategy than many other funds in this sector and as such holds one of the sector's lowest risk ratings.
Vanguard LifeStrategy 80% Equity fund
The Vanguard LifeStrategy 80% Equity fund is composed of approximately 80% by value of equity securities and 20% by value of fixed income securities as it aims to achieve its investment objective predominantly through investment in passive, index-tracking collective investment schemes. Similar to the 60% equity fund, the LifeStrategy 80% Equity fund is classified within the IA Mixed Investment 40-85% Shares sector. But as this fund adopts a more adventurous model of holding 80% in equities it has delivered higher returns.
The LifeStrategy 80% Equity fund was the only fund in the LifeStrategy range to consistently maintain a top quartile sector ranking over the past 1, 3 & 5 years with returns of 16.86%, 17.13% and 42.57% respectively.
Vanguard LifeStrategy 100% Equity fund
The most adventurous in the Vanguard LifeStrategy Fund range is the 100% equity fund. This fund has a risk rating of 7 out of 10. and it sits within the highly competitive IA Global sector. The fund has a modest performance history and over the past 1, 3 & 5 year periods it managed to return 20.58%, 26.76% and 59.08%, which although above the sector average, it was considerably lower than the sectors top performers.
Vanguard Target Retirement Funds
Vanguard’s Target Retirement Funds were introduced to service what they felt was an unmet need from investors for a simple, balanced investment to reach their retirement goals.
A Target Retirement Fund acts as a ready-made diversified portfolio that will automatically adjust asset allocation over time as investors move closer to retirement.
They are a popular choice, in particular with advisers, as their structure takes away a lot of the complexities that come with retirement planning. There are currently 11 Target Retirement Funds available and they range from a target retirement date of 2015 to the furthest of 2065.
Each fund in the target-date series has similar underlying holdings that are essentially a mix of Vanguard index funds, however the asset allocation for each varies to reflect their different retirement dates. Due to the composition of index mutual funds and the Vanguard management style, the Vanguard Target Retirement series of funds has a low expense ratio ranging from 0.16% to 0.18%.
The Target Retirement funds have 3 key features that Vanguard believe offer investors with specific retirement dates in mind high quality investment options.
1. Diversification
Each of the Target Retirement Funds invests in Vanguard's broadest index funds, giving you access to thousands of U.S. and international stocks and bonds.
2. Managed Asset Allocation
The funds' managers gradually shift each fund's asset allocation to fewer stocks and more bonds so the fund becomes more conservative as you get closer to retirement.
3. Low Cost
The average Vanguard Target Retirement Fund expense ratio is 78% less than the industry average.
As they are a passive investment, the fees for Target Retirement funds are very competitive. The below table shows the ongoing charges, accounts fees and transaction costs for owning Vanguard Target Retirement Funds.
The performance of the Vanguard Target Retirement funds has been very impressive. All of these funds, with the exception of the Target Retirement 2015 fund, sit within the IA Mixed Investment 40-85%.
As identified in our analysis, every Target Retirement fund with a date beyond 2045, has ranked among the top 75% of funds in their sector for performance. Only the 2020 fund has 1 period of underperformance, with the remaining funds all outperforming the sector average consistently.
Low Cost & Competitive Performance
Vanguard has been one of the biggest beneficiaries from the rise of low cost, passive investment products which has helped them grow from £575 billion of client funds under management in 2005 to £5.9 trillion today.
Their founder Jack Bogle was credited with creating the first index fund and his famous saying "Don't look for the needle in the haystack. Just buy the haystack!" fits Vanguard's mainly passive approach to fund management.
Their relatively recent addition of convenient, ready-made investments has proven popular with UK advisers and their investors, who have entrusted tens of billions to these low-cost products, which have largely performed well compared to their peers. This mixture of convenience, low cost and competitive returns certainly makes Vanguard and their products an attractive option for many, but for those who wish to maximise their portfolios returns the passive structure of Vanguards funds is not always the best option As demonstrated in our top fund reports, the best performing active fund managers often deliver considerably higher returns than their passive counterparts, which for growth seeking investors, can be significantly more rewarding.
However, despite a large proportion of their funds consistently underperforming, they still hold a range of highly competitive funds that also benefit from comparatively being lower-priced than their peers.
Optimise Your Investments With Yodelar
There are thousands of fund options available for constructing a portfolio, but with most funds underperforming, many investors often experience disappointing returns on their investments.
At Yodelar, our portfolio development is rooted in years of exhaustive analysis of the universe of funds and managers. We consistently evaluate over 100 managers, tens of thousands of funds, and 30,000 model portfolios. This ongoing research reveals that only a small subset of funds and managers consistently outperform, with over 90% of portfolios containing chronic under-performers.
These data-driven insights inform our structured portfolio construction process, employing top-tier, proven funds within each asset class based on rigorous backtesting.
As an FCA-regulated firm, we prioritise advanced analytics to support our recommendations. Our objective is to provide independent advice and portfolio management that significantly boosts client returns through detailed research.
Through extensive due diligence on global funds, we identify leading managers we believe are best equipped to deliver consistent outperformance. This process allows us to craft optimised portfolios designed to maximise clients' growth potential within specified risk parameters.
