Editor's note: This is part of a continuing series of articles looking at the 20 biggest no-load stock funds.
With S&P 500 index funds, it's all about the stock market -- in particular, the market for the largest U.S. companies. As large-capitalization U.S. stocks go, so will Vanguard 500 Index. Lately, large-company stocks have been sluggish compared with small-company stocks, so Vanguard 500, whose holdings have a median market capitalization of $60 billion, hasn't been all that impressive. But it's only a matter of time before large-cap stocks turn the tide, and that bodes well for Vanguard 500.
With index funds, only three things matter: What index the fund tracks; how well it tracks the index; and how much the fund charges. In the case of the investor share class of Vanguard Index 500, annual fees of 0.18% are near rock bottom. Moreover, Vanguard 500, the granddaddy of all index funds and the nation's biggest no-load fund, with assets of $118 billion, has done well at hugging the index. Over the past 20 years to December 1, the fund has trailed its benchmark by just 0.08 percentage point per year, on average.
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A burning issue with index funds is how they stack up against actively managed funds. How Vanguard compares with other domestic stock funds depends in great part on how large-cap stocks perform relative to small caps. In each year between 2000 and 2005, when small-cap stocks were applying a licking to large caps, the average U.S. stock fund outpaced Vanguard 500. As a result, the average stock fund has edged Vanguard 500 over the past ten years. But over the past 15 and 20 years, the index fund still has the advantage (this kind of analysis actually overstates the performance of actively managed funds because of something called survivorship bias -- the tendency of the worst-performing funds to disappear from databases as they are liquidated or merged out of existence).
Looking only at large-company funds, Vanguard 500 more often than not outperforms its peers. In fact, in only three years of the past 13 has the average large-cap fund outpaced Vanguard 500. In short, because we're bullish on large-company stocks and because most big-company funds lag the S&P 500, Vanguard 500 is a BUY.
FUND FACTS
Vanguard 500 (VFINX)
Assets: $117.7 billion
Manager (year started): Michael Buek (2005)
Returns (vs. S&P 500)*
Year to date: 16.2% (16.2%)
One year: 15.2% (15.3%)
Three years annualized: 11.3% (11.4%)
Five years annualized: 6.1% (6.3%)
Ten years annualized: 8.3% (8.4%)
Expense ratio: 0.18%
Portfolio turnover: 6%
Initial minimum investment: $3,000
Phone: 800-635-1511
Web site: www.vanguard.com
*Returns through December 19
Fund Fact sources: Standard & Poor's, Morningstar
View updated data for this fund and compare the performance of the 20 biggest no-load stock funds.
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