Where To Shop At Vanguard
Fidelity Investments fired a salvo right at indexing powerhouse Vanguard Group when the mutual fund giant slashed the expense ratios on five stock index mutual funds on Aug. 31. For now, at least, that effectively eliminated Vanguard's long-held edge on the cost of index investing.
So what does this mean for fund investors? That depends on how much you're putting into index portfolios. Vanguard sets just $3,000 minimum investments for its index funds ($1,000 for individual retirement accounts); Fidelity requires a $10,000 minimum. Vanguard also offers more index fund flavors, with 48 portfolios that cover every corner of the stock and bond markets. Investors with $10,000 or more will do better at Fidelity: Expenses run $10 for every $10,000 invested on Spartan 500 (FSMKX ), Spartan Total Market (FSTMX ), Spartan Extended Market (FSEMX ), Spartan International (FSIIX ), and Spartan U.S. Equity (FUSEX ) index funds. Vanguard charges $18 to $36 for similar funds.
OUT OF REACH
Still, there's more to Vanguard than just index funds. Its actively managed funds stand up well to Fidelity's, performance-wise -- and, of course, beat them hands down on expenses. The typical Vanguard actively managed stock fund has an expense ratio of just 0.31%, which is less than half that of the average actively managed Fidelity fund, according to Morningstar.
The problem -- for prospective Vanguard investors -- is that some of its best actively managed funds are out of reach. Vanguard International Explorer (VINEX ) and Vanguard Primecap (VPMCX ), for instance, are closed to new investors. To buy into Vanguard Health Care (VGHCX ), you need to put in at least $25,000. "We want to make sure that a fund keeps its character over time," says Jeffrey Molitor, Vanguard's head of portfolio review. Such moves protect existing shareholders' interests but make it hard for newcomers to invest.
Fortunately, Vanguard has some worthy portfolios still open to investors for a $3,000 minimum. Daniel Wiener, editor of the Independent Adviser for Vanguard Investors, recommends Vanguard Explorer (VEXPX ), Growth & Income (VQNPX ), Windsor II (VWNFX ), and U.S. Value (VUVLX ). Wiener suggests using Windsor II as a core holding because the $30 billion fund focuses on large-cap value stocks.
More aggressive investors might consider Strategic Equity (VSEQX ), a quantitatively managed fund that Vanguard runs in-house. The fund's computer models do a stellar job of picking stocks: The $3 billion portfolio has beaten most of its peers in the past three and five years.
If you are looking for a back door into the Primecap or Capital Opportunity (VHCOX ) funds, Primecap Management -- which runs those Vanguard funds -- is expected to roll out three funds under its own label. Be prepared to pay higher expenses, though, for Primecap's own offerings. No one has yet been able to undersell Vanguard on actively managed funds.
By Lauren Young