Why VMRGX’s Year-to-Date 2016 Has Been Lackluster


May. 31 2016, Published 3:36 p.m. ET

Performance evaluation of the Vanguard Morgan Growth Fund

As of May 27, 2016, the Vanguard Morgan Growth Fund Investor Shares (VMRGX) had fallen by 0.7% YTD (year-to-date) in 2016, making it a below-average performer among the ten funds in this review.

We’ve graphed its performance against the PowerShares QQQ Trust, Series 1 ETF (QQQ) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what’s contributed to the fund’s below-average performance so far this year.

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Portfolio composition and contribution to returns

The healthcare and financials sectors are the only sectors that have contributed negatively to VMRGX’s returns in 2016. Allergan (AGN) and Vertex Pharmaceuticals (VRTX) have been the worst performers, with help from Alexion Pharmaceuticals (ALXN) and Celgene (CELG).

There have been a small number of positive healthcare sector contributors such as CR Bard (BCR), but their total contribution has been too small to have any meaningful impact on the negative contributors. Meanwhile, the fund’s financials holdings have been led down by the Bank of America (BAC).

The industrials sector has helped to reduce the fund’s overall negative returns, though no single stock has powered the sector ahead. The sector’s positive contribution has been the result of small contributions from several stocks (HON) (EFX) (TDG). However, the Boeing Company (BA) has been a clear leader among the sector’s detractors.

The information technology and consumer discretionary sectors have tailed industrials in terms of positive return contributions. Facebook (FB) has nearly single-handedly powered the technology sector. Amazon (AMZN) and Comcast (CMCSA) share the honors for the consumer discretionary sector.

Detractors among VMRGX’s technology holdings include Alliance Data Systems (ADS) and LinkedIn (LNKD). The consumer discretionary sector also has its share of detractors (NFLX) (NKE), but their total negative contribution has been quite small.

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Comparison with QQQ

Even after being in the red so far in 2016, VMRGX has outperformed QQQ. Among the sectors the two funds have in common, only VMRGX’s stock picks from the consumer staples sector have done worse than those in QQQ.

Investor takeaway

VMRGX has had a great May, but its 2016 hasn’t been good. The fund’s high consumer discretionary exposure may benefit if consumers begin spending their earnings from slightly better wages and their savings from cheap gasoline.

VMRGX’s focus is on three sectors. Though it’s meaningfully diversified across these three, investors looking for more diversified exposure across sectors may want to look at other large-cap funds.

In the last part of this series, we’ll take a look at the overall picture that emerges from this analysis.


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