Why is the Vanguard Morgan Growth Fund Having a Patchy YTD 2016?

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Sep. 1 2016, Updated 10:05 a.m. ET

Performance evaluation of the Vanguard Morgan Growth Fund

The Vanguard Morgan Growth Fund – Investor Shares (VMRGX) has been a below-average performer YTD through August 26, 2016. Its status is the same in the one-year period among the 12 funds chosen for this review.

We have 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 below-average performance by the fund so far in 2016.

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Contribution to returns

Information technology stocks have emerged as the biggest contributors to the fund’s returns in 2016 so far. Facebook (FB) has led positive the contributors from the sector, including Apple (AAPL) and Oracle (ORCL). However, LinkedIn (LNKD), Alliance Data Systems (ADS), and First Solar (FSLR) have reduced some of the positive contributions.

Amazon (AMZN) has helped the consumer discretionary sector post solid gains in YTD 2016. Other major gainers from the sector include Comcast (CMCSA) and Ross Stores (ROST).

The industrials and consumer staples sectors are quite close in terms of positive contributions to the fund’s returns. Industrials were helped by stocks like TransDigm Group (TDG), Cintas (CTAS), and Equifax (EFX). Meanwhile, Hershey (HSY) and Pepsico (PEP) have been instrumental in helping the consumer staples sector post gains.

Healthcare and financials are the only sectors that have contributed negatively to the fund’s returns in 2016 so far. Gilead Sciences (GILD), Alexion Pharmaceuticals (ALXN), and Bristol-Myers Squibb (BMY) have led healthcare down. Meanwhile, financials have been led down by Bank of America (BAC).

Investor takeaways

VMRGX has been quite patchy in terms of performance this year. It has a great month and then follows it up with a lackluster performance. Tech stocks have been beneficial to VMRGX, and its high exposure to consumer discretionary stocks may be helpful if consumer spending gets a boost.

It’s important to note that the fund’s performance is driven mainly by three sectors, which we explored in the previous article. So, investors looking for a more diversified exposure across sectors will need to look at other large-cap funds.

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

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