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Vanguard Dominates Top Investor Holdings

Many investors say that buying a stock, ETF or mutual fund is the easiest part of investing. The hard part comes when deciding when to sell. On the surface, selling a stock may be easier than selling a mutual fund or ETF because there are more quantitative variables to analyze–growth rates, valuations, ratios, etc.–helping you to decide whether it is time to dump it from your portfolio.

For a mutual fund or ETF that holds dozens, if not hundreds, of stocks, the decision to sell may not be so clear-cut. So last week we posed the following question to our readers:

What is your primary reason for selling a fund (ETF or mutual fund)?

Here are the results:

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Out of the 1,342 votes we received as of 10:30 a.m. (Central) on Sunday, 61% use performance as the primary reason for selling an ETF or mutual fund. Among those voters, roughly one-third use performance compared to the overall market as a reason to sell, followed very closely by performance compared to peers.

Among those that don’t use performance when making sell decisions related to ETFs or mutual funds, more than a quarter said that changes in their own risk tolerances and expectations were the primary reason for selling a mutual fund or ETF. Another 22.5% of this group said changes to the fund itself–strategy, management team, expenses, etc.–was a primary reason for selling.

Nine percent (9%) of respondents said they do not invest in mutual funds or ETFs and another 11% selected “other” as a reason for selling.

Weekly Special Question

Two weeks ago we asked our readers to tell us what their top three dividend paying stocks were. Last week, we shifted our focus to mutual funds and ETFs and asked the question:

What are the TOP THREE mutual funds or ETFs you currently own (as a percentage of your overall portfolio)? Why did you select them?

In all, 136 readers answered the question and submitted 377 tickers. Unlike two weeks ago, where a few stocks were clear-cut favorites, this week saw a wider number of selections. In fact, of the 377 tickers submitted, 143 (37.9%) received a single vote. [For simplification purposes, we combined votes among different fund share classes. So, for example, we combined the votes for Vanguard Admiral shares and Investor shares into a single tally for a given fund.]

Perhaps not so surprising was the fact that Vanguard dominated the top holdings among our readers. In fact, eight of the top 10 vote-getters were Vanguard mutual funds or ETFs.

Furthermore, five of the top 10 are index or passively-managed funds, meaning the other five are actively-managed.

The top holding among our readers is the Vanguard 500 Index Fund, garnering nearly 4% of the votes. This is the industry’s first index fund for individual investors and is a popular, low-cost way to gain diversified exposure to the U.S. equity market. The fund invests in 500 of the largest U.S. companies.

A close second was the Vanguard Total Stock Market Index Fund with just under 3.5% of the votes. Unlike the Vanguard 500 Index Fund, which invests in the 500 largest U.S. companies, the Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.

Rounding out the top three mutual fund/ETF holdings with roughly 3.2% of the votes are the Vanguard Total Stock Market ETF and the Vanguard Wellington Fund. The Vanguard Total Stock Market ETF is the ETF version of the  Vanguard Total Stock Market Index Fund. The Wellington Fund is Vanguard’s oldest mutual fund, started in 1929. This balanced fund offers exposure to stocks (about two-thirds of the portfolio) and bonds (one-third) across all economic sectors.

Only two non-Vanguard funds are in the top: the SPDR S&P 500 ETF Trust (SPY) and the Fidelity Contrafund Fund. The SPY is an index ETF tracking the S&P 500 large-cap index while, according to its prospectus, the Fidelity Contrafund invests in securities of companies whose value Fidelity Management and Research (FMR) believes is not fully recognized by the public, investing in either growth or value stocks, or both.

There was only one sector fund in the top 10: the Vanguard Health Care Fund. This actively managed fund invests in domestic and foreign companies involved in various aspects of the health care industry, such as pharmaceutical firms, medical supply companies, and research firms.

In all, the top-10 vote-getters accounted for 26.5% of all the tickers submitted.

Rounding out the top 10 vote getters are:

  • SPDR S&P 500 ETF Trust: 2.4%
  • Fidelity Contrafund Fund: 2.1%
  • Vanguard Health Care Fund: 2.1%
  • Vanguard Capital Opportunity Fund: 2.1%
  • Vanguard Mid-Cap Index Fund: 2.1%
  • Vanguard PRIMECAP Fund: 1.9%

Compared to other mutual fund providers, Vanguard’s popularity rests with is low fee structure. Beyond low fees, the overriding reason for investing in mutual funds and ETFs is easy diversification versus building a portfolio of individual stocks.

Want to weigh in? Participate in our weekly member poll, updated every Tuesday, and see the results online at http://www.aaii.com/memberquestion.

For nearly 40 years, AAII has been providing unbiased, practical investor education to help individuals become effective managers of their own assets and achieve their financial goals. Consider a risk-free 30-day Trial AAII Membership today.

 

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