Vanguard Total Stock Market Joins Our Ima Winner Fund Club
Ian McDonald
10/01/01 - 07:45 AM EDT
One lesson from the past year's storm: Your portfolio's most valuable player is a vanilla stock fund run by a button-down type, not some flashy tech fund with a shiny-toothed frat boy at the helm.
To help you find that MVP, today we're ushering the
(VTSMX)Vanguard Total Stock Market Index fund into our Ima Winner Fund Club, while the sputtering
(DREVX)Dreyfus fund slinks into our Ima Loser Fund Club. Both live in the large-cap blend fund category, meaning they have most of their assets in big-cap stocks and don't lean heavily toward either the growth or value style.
One of investing's oldest saws is that you should slug 40% to 50% of your money in a core U.S. stock fund that gives you broad, cheap exposure to a vast array of stocks. The idea is that this fund will tether a big chunk of your portfolio to the broader market, allowing you to choose more aggressive funds with the rest of your money without losing your shirt when speculative fare craters. A good core fund won't bail you out of a falling market, but it will help you stave off the massive losses suffered by folks who make big bets on hot sectors that melt down. Witness the average tech fund's stunning 70% drop over the past year, vs. a 30% fall for the S&P 500
.
Let's check out our winner first, shall we?
The Winner
If the perfect core stock fund scatters your money broadly, keeps costs low and delivers solid returns, the Vanguard Total Stock Market Index fund is a no-brainer.
The no-load
fund, run by index guru Gus Sauter since its 1992 inception, tracks the Wilshire 5000, essentially an index of every small-, mid- and large-cap stock traded in the U.S. Because it's not practical to own all the tiny stocks in the index, Sauter typically carries a portfolio of about 3,400 stocks. That's pretty broad compared with his average peer's 220-stock portfolio, according to Morningstar.
Thanks to the $15.8 billion in its coffers, the Vanguard fund has had no problem living up to its reputation for keeping costs modest. The fund carries no sales charge, and its 0.20% annual expense ratio is a fraction of its average peer's 1.24% toll. That 0.20% means you're paying just $20 a year in expenses if you've got $10,000 in your account, compared with $124 for the average big-cap blend fund. You can buy the same fund and pay just 0.15% if you qualify for its
Admiral share class by investing $250,000, having $150,000 in an account you've held for at least three years or $50,000 in an account you've held for 10 years.
As you might expect from its slow and steady approach, the fund isn't a highflier -- but its returns are nothing to yawn at, either. It has topped its average peer in seven of the past nine calendar years, and its 8.1% annualized gain over the past five years tops its average competitor.
| Ima Winner |
 |
(VTSMX)Vanguard Total Stock Market Index |
Average Peer |
| 1-Year Return |
-31.6% |
-30.3% |
| 3-Year Return |
0.2 |
-0.4 |
| 5-Year Return |
8.1 |
7.2 |
| Source: Morningstar. Returns through Sept. 24. |
Because the fund buys stocks in the index and holds them, big capital gains distributions haven't been a problem. The fund has been more tax efficient than 70% of its peers over the past five years.
If you're a fan of exchange-traded funds and you're looking for one that tracks this index, check out
Vanguard's Total Stock Market VIPERs. You have to pay a brokerage commission to buy these shares, but their annual expenses are just 0.13%.
The, Well, Loser
The Dreyfus fund is looking about as sleek and fit as the average 50-year-old -- if that 50-year-old was a roadie for the Rolling Stones in the 1970s.
An optimist might say this fund, launched in 1951, is primed for revitalization, with co-managers Douglas Ramos and Hilary Woods taking the reins two months ago. After all, the $1.8 billion fund's 31.6% fall over the past 12 months matches our winner's decline and the overall market's tumble. But one glance at the fund's record probably would make even the sunniest optimist dour.
Former manager Tim Ghriskey had a knack for trailing the pack over the past four years, but the fund's bumbling stretches back further than that. It has lagged behind its peers in nine of the past 10 years. It lags the S&P 500 over the past one, three, five and 10 years. Its 7.1% annualized gain over the past 10 years and 2.2% annualized gain over the past five years each trail more than 92% of the fund's peers.
| Loser! |
|
(DREVX)Dreyfus |
Average Peer |
| 1-Year Return |
-31.6% |
-30.3% |
| 5-Year Return |
2.2 |
7.2 |
| 10-Year Return |
7.1 |
11.6 |
| Source: Morningstar. Returns through Sept. 24. |
Making matters even worse, the fund has been one of the least tax efficient in its category. Over the past five and 10 years, the fund's tax-efficiency ratio ranked below more than 90% of its peers, according to Morningstar.
Long story short, the Dreyfus fund seems older than it does wise.
