Why the Vanguard Growth Index Fund Has Done so Well in 2016


Jul. 22 2016, Published 6:57 p.m. ET

Performance evaluation

The Vanguard Growth Index Fund Investor Shares (VIGRX) has risen by 4.7% YTD (year-to-date) in 2016. This places it as the third-best performer among the 12 funds we’ve chosen for this review. Across the periods plotted in the graph below, the fund has figured among the top four in its peer group.

We’ve graphed its performance against two ETFs: the iShares S&P 500 Growth ETF (IVW) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what has contributed to this performance by the fund YTD in 2016.

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Portfolio composition and contribution to returns

Both consumer-focused sectors—staples and discretionary—have benefitted the fund immensely YTD in 2016. Philip Morris International (PM) has led staples, with support from Coca-Cola (KO). Negative contributors have not bothered the sector due to their negligible contributions. Meanwhile, Comcast (CMCSA) has led the discretionary sector and has had substantial support from Amazon.com (AMZN).

The largest sectoral holding, information technology, closely trails the discretionary sector as the third-biggest positive contributor. Facebook (FB) and Oracle (ORCL) have been the biggest positive contributors to the sector, but negative contributions from Apple (AAPL) and Class A and C shares of Alphabet (GOOGL) have weighed on the sector.

Financials have done quite well. Although there’s no standout performer, small positive contributions from several stocks like Simon Property Group (SPG) and American Tower (AMT) have helped the sector. Meanwhile, 3M Co (MMM) has powered industrials.

The healthcare sector is the only sector that has weighed on the fund YTD in 2016. Allergan (AGN) and Gilead Sciences (GILD) are among the notable decliners.

Investor takeaway

VIGRX has done well YTD in 2016, but it has come up short against the SPDR S&P 500 ETF (SPY). Stocks comprising the consumer discretionary, financials, and information technology sectors in VIGRX have outdone their peers comprising SPY. But energy, healthcare, telecom services, and utilities have lagged behind.

VIGRX’s passive nature makes it a simple instrument to invest in, as far as mutual funds are concerned because investors don’t need to worry about stock picking and the fund manager’s performance. This is shown in its large asset size as well. But its performance still needs to be compared to ETFs, which are passively managed as well and may be somewhat cheaper than mutual funds.

Now let’s move on to the last US equity mutual fund in our review: the Vanguard PRIMECAP Fund Investor Shares (VPMCX).


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