If you are interested in investing in index funds or ETFs, then there’s a good chance you may have heard of Vanguard before. Vanguard is one of the best-known investment platforms in the world, based in the US since 1975, but offering a fantastic service online to UK investors also. But what are the best Vanguard funds available for you to buy into right now?
If you are just starting out when it comes to investing, it’s a good idea to look closely at the best performing Vanguard funds across a set period. Thankfully, there is plenty of data on this out there, and Vanguard itself offers a wide array of different investment options you can dip into.
So – without further ado, let’s take a look at the different types of funds and investment options available on Vanguard, and which have the potential to make you a healthy return in the years to come. Although it’s important to note that past performance does not guarantee future results.
Index Funds vs ETFs
Vanguard offers funds and ETFs, all available through their online platform. Before we even consider the best Vanguard funds available, however, let’s take a quick look at the difference between these fund types.
- Mutual funds – this is the collective name for various funds which fall within this category such as index funds and active funds, blended funds (such as Vanguards LifeStrategy funds) and fixed income funds aka bonds.
- ETFs (Exchange Traded Funds) – These work a little bit like stocks in the sense that you can trade them at any time throughout a market day. Compared to index funds for example where the price is calculated once a day.
People may choose ETFs over mutual funds for the fact that generally you can invest with smaller amounts as they usually have lower minimum investment demands. They are also generally cheaper to run so can have lower ongoing fees. They can be an easy first option for beginner investors, making the range of ETFs on Vanguard particularly appealing.
LifeStrategy vs Target Retirement Funds
Vanguard also offers blended funds which are essentially a ‘fund of funds’, where you can invest money in bundled equities which can also include bonds. The two blended types of fund you can buy into at Vanguard are LifeStrategy and Target Retirement.
- LifeStrategy actually gives you a pick of five different mixtures of equities vs bonds split. This starts at 20% equity and 80% bonds up to the 100% equity option. This is a passive option compared to actively choosing funds and ETFs on your own, meaning if you are relatively new to the world of investing, or if you simply want a completely passive approach, this is likely to be an excellent choice.
- Target Retirement fund options are also completely managed on your behalf, built with your own attitude to risk and retirement date in mind. These funds also vary in terms of equity vs bonds split and are automatically adjusted towards a higher bond allocation as you near your target retirement date.
Best Performing Vanguard Index Funds
When it comes to finding the best index funds on Vanguard UK, you’re going to need to ideally look across the past three to five years of data. However of course it’s very important to note that past performance does not guarantee future results. Although it is about the best marker for performance you’re going to get. For the purpose of this guide, I’m going to crunch the numbers from the past three years. Here are the top three index funds ,based on past performance, available via Vanguard UK at time of writing:
- US Equity Index Fund. Overseeing a total growth since inception of 516.99%, this index fund has seen growth of 48.12% over three years. It’s historically the best performing fund in this category.
- FTSE Developed World ex-UK Equity Index Fund. A bit of a mouthful to say, but this index fund is the second-most successful index equity fund on Vanguard regardless. It’s seen a three-year growth of 35.84%.
- ESG Developed World All Cap Equity Index Fund. Closely following the above is this developed world fund with growth of 35.46% over three years.
Keep in mind that we’re not looking at diversification levels here or considering the individual ongoing fund charges. This isn’t a recommendation to go and invest in these funds without doing your own research. It’s simply highlighting the past performance.
Best Performing Vanguard Active Funds
At the time of writing, the top three best performing Vanguard active funds (three year cumulative) are as follows.
- Global Equity Fund. Returns on this fund are on a steady plateau after a tricky 2020 for just about everyone. Over three years, there has been 44.3% growth.
- Global Emerging Markets Fund. Much like the above, this fund saw a large dip at the start of the pandemic (as did the market as a whole) but has, at the time of writing, since recovered healthily. There’s a three-year growth of 26.33%.
- Global Credit Bond Fund. Rounding off the top three is this hedged investor accumulation, which bounced back very strong from early 2020. Three-year growth sits at an impressive 21.26% vs a benchmark of just 14.44%.
Best Performing Vanguard ETFs
Again, as with the funds listed above, I considered a three-year cumulative growth performance window for ETFs. The following figures, once again, are accurate as of the time of writing. As already mentioned and as Vanguard directly states, past performance is not any sort of guarantee of future success, but it’s a useful to consider none the less.
Here are the top three performers in terms of Vanguard ETFs:
- FTSE North America UCITS ETF (VNRT). Over three years, this ETF boasts growth of 48.77%, compared to a benchmark of 47.96%.
- S&P 500 UCITS ETF (VUSA). Following close behind is this ETF that has seen growth of 47.16% over three years, to a 46.17% benchmark.
- FTSE Developed World UCITS ETF (VEVE). The third-place option goes to this developed world ETF. There’s been growth of 35.53% over the last 3 years compared to a benchmark of 35.19%.
It’s worth noting that these ETFs are also available to invest in via other platforms such as the excellent Hargreaves Lansdown, as well as various other platforms including some which provide app based investing and offer a low barrier to entry for those looking to get started with investing.
LifeStrategy Fund Options
There are, as mentioned earlier in our guide, five blended fund options under the LifeStrategy umbrella right now.
LifeStrategy funds offer a choice of split when it comes to equity and bonds, meaning that you can choose one of the following blended packages depending on your own tastes:
- 20% Equity (80% Bonds)
- 40% Equity (60% Bonds)
- 60% Equity (40% Bonds)
- 80% Equity (20% Bonds)
- 100% Equity
The higher the equity share, the higher the risk factor. LS20 offers a low risk option of 3/10 with a mark of ‘cautious’, while the LS100 offers an ‘aggressive’ risk option of 5/10. Of course, it’s worth taking past performance with a pinch of salt, so definitely check out those figures in line with Vanguard’s risk analysis if you are interested.
Target Retirement Fund Options
Target Retirement funds are different beasts altogether. Right now, there are eleven active target Retirement funds available through Vanguard, starting with 2015 and 2020 before moving all the way ahead to 2065. As you may have guessed, these are so named based on the dates where you’re likely to want to retire.
Therefore, anyone born in 2000 may likely be looking at the 2060 or 2065 funds based on state retirement age, though if you’re keen to retire early (aren’t we all!), you might consider 2050 or earlier.
There is quite a bit of data to crunch if you are looking at performance stats across all of the retirement funds available, so let’s take a brief look at the five year facts at either end of the scale for representative purposes.
The 2015 fund, as of the end of February 2021, seen five-year growth of 38.45%. Going further up the scale, the five-year performance for the 2035 fund sits at a healthy 58.94%. Right now, the latest fund choice offering five-year stats is the 2055 fund, with growth over five years sitting at 64.72%.
Looking at that data alone, we can see that the later the retirement date, the higher the five-year growth. This is generally expected as the way Target Retirement funds are structured is that the closer the retirement date, the higher the allocation of ‘safer’ investments – namely bonds.
As you can see, Vanguard does strive to cover as many bases as possible, and on the whole, they have a series of very healthy funds and ETFs for you to invest in. However, there’s no one or two options that are likely to be the ‘best performers’ across the board. You absolutely need to think carefully about how you want to invest, how much you’d like to put forward, and even when you’d like to retire.
The best Vanguard funds aren’t necessarily those which are likely to have firm past performance – you’re going to need to look at a wider range of parameters.
Passive investors will likely want to take consider the LifeStrategy blended funds if they don’t want to have to muddle around with picking individual funds and wider market strategies on their own.
You could also consider a completely passive investment option elsewhere, i.e. through a popular UK platform such as Nutmeg. Whatever you decide, be sure to consider the key aspects such as how involved you want to be, fund and account options available, and of course the all important fees.