Vanguard ETFs and Vanguard Mutual Funds: The Winners Are…

Vanguard ETFs

The Best Vanguard ETFs and Mutual Funds: The Winner’s Choice

Many investors believe that Vanguard ETF and order ETFs offer higher returns than mutual funds. Mutual funds have a few drawbacks. They are expensive and can be difficult to time the markets, making it more difficult for investors to jump in and out of stocks. Morningstar.com published an article recently challenging these assumptions. Morningstar’s Vice President for Research stated that Vanguard’s largest mutual fund portfolios are performing better than Vanguard’s largest unmanaged funds.

This article shows how Vanguard’s managed mutual fund performance ranks have outperformed Vanguard’s largest non-managed mutual fund’s by five years. Note: This is one of my favourite articles about fund investing.

When I attempted to compare Vanguard ETFs with similar Vanguard managed funds, I saw a different perspective. These funds were chosen because they most closely resemble an ETF. This would allow me compare managed mutual funds and unmanaged ETFs of the exact same type. Vanguard ETFs consist of an identical unmanaged mutual fund, with a slightly different structure and exactly the same portfolio composition. Vanguard Growth ETF ( UUG ) is, in essence, the Vanguard Growth Index Admiral Fund VIGAX.

If ETFs are chosen from the same fund company that Vanguard, they will outperform managed mutual money of the same type. ETFs may also offer non-performance benefits that make them more appealing than managed funds. ETFs could also offer tax benefits in taxable accounts.

Let’s compare managed mutual funds with unmanaged ETFs.

A Step-By-Step Guide

I reviewed the Vanguard entire list of mutual funds, ETFs and Vanguard’s entire Vanguard list. I wanted managed funds that had the closest portfolios to ETFs. Vanguard might classify a fund as a Value fund but actually have more stocks that are in the Blend category.

It was sometimes difficult to find Vanguard pairs that “matched”, based on Vanguard’s only fund categories. If I were matching Growth funds with a Fund, I would choose one similar to VUG. However, it should be available to new investors. Vanguard PRIMECAP ( VMCX), was an option but is currently closed. The fund is currently not available for purchase. Also, I needed funds with at least five years track record. Some options that could have been very good were eliminated.

Here is a list with the eight selected pairs:

  1. Total Stock Market ETF (VTI) vs. Dividend Growth Fund (VDIGX)
  2. VXUS Total International Stock ETF (VXUS), vs. VTRIX International Value Inv.
  3. Total Bond Mkt ETF (BND) vs. Core Bond Inv (VCORX).
  4. Windsor Inv (VWNDX), Value ETF (VTV), vs. Windsor Inv(VWNDX).
  5. VUG vs. VDEQX Diversified Equity
  6. Mid-Cap ETF (VO), vs. Strategic Equities Inv( VSEQX).
  7. Small-Cap ETF (VB) vs. Strategic Strategic Small Cap Inv VSTCX
  8. FTSE Emerging Markets FTSE FTSE ETF( ) vs Emerging Markets Sel Stk Inv ( VMMSX).

Comparison of Performance Results For Eight Popular Vanguard ETFs Similar Vanguard Managed Fonds

Let’s see how each fund pairing performed over one, three, and five-year periods.

bold Text indicates that a fund has performed better than its “matched”. Annualized returns as of 8-23-22.




Fund/ States Category
1-Year Reward

3-Year Return

5-Year Return

Total Stk Mkt ETF /Large Blend
-8.93
14.28
12.45

Dividend Growth /Large Blend

+0.79
12.52
13.41




Fund/ States Category
1-Year Reward

3-Year Return

5-Year Return

Tot Incl Stk ETF/For Lar Blend
-16.38 4.83 2.46

Intl Val Inv / For lar Value

-13.76

4.94
2.46

 

Please note: Vanguard defines “Stated category” as follows. The two funds are very similar in that they both contain large blend stocks.





Fund/Stated category

1-Year Reward

3-Year Return

5-Year Return

Tot Bond Mkt ETF /Interm Bnd

-11.17
-1.75 0.67

Core Bond Iv / IntermBnd
-11.46
-1.02

1.07




Fund/Stated category

1-Year Reward

3-Year Return

5-Year Return

Value ETF/ Large Value
1.29 12.56 10.40

Windsor Inv/ Large Value

2.92

16.40

10.98





Fund/Stated category

1-Year Reward

3-Year Return

5-Year Return

Growth ETF/Large Growth
-16.43
16.63

15.24

Diversified Eq /Large Blend

-13.46
14.25 12.47




Fund/Stated category

1-Year Reward

3-Year Return

5-Year Return

Mid Cap ETF/Mid Blend
-9.59 12.12
10.47

Mid Blend / Strategic Eq

-3.65

13.77
10.25





Fund/Stated category

1-Year Reward

3-Year Return

5-Year Return

Small Cap ETF / Small Blend
-9.82 11.21
9.70

Strat Small Cap Eq / Sm Mix

-2.82

14.47
9.44





Fund/Stated category

1-Year Reward

3-Year Return

5-Year Return

FTSE Emer MTs ETF /Em MWts

-14.54

4.76

1.69

EmergMkts Sel STk / Em Mkts
-19.45 3.36 1.20

 

Interpreting These Results

Every one of the eight fund comparisons revealed at least one instance of a managed fund outperforming an unmanaged fund. Emerging Market managed funds were the exception.

Six of eight comparisons revealed that managed funds outperformed ETFs over a one-year period. When the time period was three years, the results were mixed. Managed funds had a slight edge, however. After five years, however, the results were almost identical and favor ETFs slightly.

ETFs perform better when held for longer periods, while managed funds that can take advantage of short-term market trends seem to be the best.

Strategies: Suggestions

Vanguard ETFs or mutual funds with the same portfolio composition as VIGAX are best for long-term investors.

Vanguard actively managed funds can increase your returns in a shorter period of time, especially if you have an income-deferred portfolio such as a 401(k).