The best Vanguard funds for 2022 won't be a rinse-and-repeat of 2021.
Many of the old standbys from last year focused on ideas and strategies that worked well in a low-interest rate environment – like an overweight exposure to the growthy tech sector. But with the Federal Reserve expected to raise its benchmark interest rate several times this year, strategists predict turbulence for mega-cap tech stocks (and indeed, they've already suffered mightily early on in 2022).
The end of 2021 saw the start of a rotation out of aggressive growth and into value stocks and defensive plays, and that's largely expected to continue as we move deeper into 2022, as long as inflation remains a major theme.
But as 2020 and 2021 reminded us: The economy and Wall Street alike are capable of completely blindsiding us. It could come from wild cards we already know to watch out for, such as another variant of COVID-19 or a Russian invasion of Ukraine, or it could be a new black swan. Either way, it pays to be flexible, and that means having flexible options.
With that in mind, here are the 12 best Vanguard funds for 2022. This list of a dozen funds should help you leverage (or protect against) the major themes of this year: volatility, rising interest rates, inflation and a slow year for mega-cap stocks. But they all have one thing in common: Vanguard's signature low fees.
Data is as of Jan. 31. Fund yields represent the trailing 12-month yield, which is a standard measure for equity funds, unless otherwise noted. Minimum initial investment for all funds listed here is $3,000.
Vanguard Global Minimum Volatility Fund Investor
- Category: World stock
- Assets under management: $2.7 billion
- Dividend yield: 1.9%
- Expenses: 0.21%, or or $21 annually for every $10,000 invested
Hands down, the most apropos way to begin our look at 2022's best Vanguard funds is the Vanguard Global Minimum Volatility Fund Investor (VMVFX, $14.28).
A risk-on market has slowly become much more risk-off, potentially leaving some investors wondering what to do with their international exposure. Vanguard Global Minimum Volatility Fund is one solution, either as a long-term core holding or a temporary stabilizer. The fund's manager evaluates all of the stocks in the FTSE Global All Cap Index, and builds a portfolio from components expected to generate lower volatility than their peers. Also, VMVFX tries to further reduce portfolio volatility by heading most currency exposure back to the U.S. dollar.
The Vanguard Global Minimum Volatility Fund is not exactly a household name among Bogleheads. It has only been around since late 2013, which is young for a Vanguard fund, and has built up $2.7 billion in assets since.
While past performance is no guarantee of future results, you can get an idea of how the fund might perform across a volatile 2022 by looking at what it has done over the past few months. Year-to-date, VMVFX is beating 83% of its category peers, and it's even better over the past three months, topping 91% of its peers. However, results aren't as great over the longer term: During the trailing three- and five-year frames, which were primarily bullish for stocks as a whole, VMVFX is near the bottom of the category.
That's a frequent trade-off with minimum- and low-volatility funds: Superior results during the less-frequent occasions where the market struggles, but suboptimal performance over long, predominantly bull periods.
As for what's under the hood of VMVFX? Remember, it's a "global" fund, which means it's international but includes the U.S. Currently, the portfolio is roughly 60% U.S. and other North American stocks, while the remainder is spread across multiple regions, including the Pacific (18%), Europe (12%) and various emerging markets (8%).
Top holdings include enterprise software name Tyler Technologies (TYL), blue-chip pharmaceutical firm Johnson & Johnson (JNJ) and freight operator C.H. Robinson Worldwide (CHRW), each of which carry a weight of less than 2%.
Note: VMVFX also trades as Admiral class shares (VMNVX).
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Vanguard International Value Fund
- Category: Foreign large value
- Assets under management: $15.2 billion
- Dividend yield: 1.4%
- Expenses: 0.35%
The Vanguard International Value Fund (VTRIX, $41.61) earns a spot among the best Vanguard funds to buy in 2022 for a reason that can be boiled down to one word: valuation.
In an environment where mounting uncertainties over inflation, rising interest rates and high-priced U.S. stocks are causing volatility, many investors are increasingly becoming more risk-averse, instead seeking out higher quality and more reasonable valuations. That includes in international stocks.
Foreign stocks, especially developed markets, tend to be cheaper than their U.S. counterparts, and you see that play out in VTRIX. The weighted average price-to-earnings (P/E) ratio for Vanguard International Value Fund's 206-stock portfolio was around 15 in late January. That's far less than the 25 P/E for the S&P 500, and less than the roughly 16 P/E for the U.S.-centric Vanguard Value ETF (VTV).
VTRIX's heaviest weight belongs to European stocks, which account for a little more than half of assets. The Pacific and emerging markets account for another 20% each, and most of the remainder is invested in North America. Top 10 holdings include familiar names such as South Korean electronics maker Samsung Electronics, Chinese e-commerce giant Alibaba Group (BABA) and Swiss drug manufacturer Novartis (NVS).
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Vanguard Health Care Fund Investor
- Category: Large blend
- Assets under management: $51.6 billion
- Dividend yield: 0.9%
- Expenses: 0.32%
The Vanguard Health Care Fund Investor (VGHCX, $210.54) takes a broad approach to healthcare stocks, investing in various sectors both in the U.S. and abroad. This provides investors with the sector's typical defensive attributes.
Pharmaceutical stocks make up the biggest chunk of the portfolio at about 40% of assets, but VGHCX investors are also exposed to biotech (19%), health insurance (14%), healthcare equipment (13%) and several other industries. There's also geographic diversification, as a good third of the Vanguard Health Care Fund portfolio is invested in international stocks.
This blend is well-evidenced in its top 10 holdings, which include the likes of America's UnitedHealth Group (UNH), Pfizer (PFE) and Eli Lilly (LLY), the U.K.'s AstraZeneca (AZN) and Switzerland's Novartis (NVS).
One caveat is that the buy-and-hold approach from Wellington Management, Vanguard Health Care's fund advisor, tends to produce average returns compared to its peers. However, it also tends to produce a below-average risk profile, which is why we like VGHCX as one of the best Vanguard funds for 2022.
Note: VGHCX also trades as Admiral Class shares (VGHCX).
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Vanguard Real Estate Index Fund Admiral
- Category: Real estate
- Assets under management: $91.5 billion
- Dividend yield: 3.2%
- Expenses: 0.12%
The Vanguard Real Estate Index Fund Admiral (VGSLX, $150.85) could easily follow up a strong 2021 with a healthy 2022. Real estate tends to perform well in high-inflation environments, and other macroeconomic trends supportive of real estate and real estate investment trusts (REITs) remain in place.
In general, tenants should have an easier time paying rents in 2022. But certain industries – such as senior housing, gaming, storage units and lodging REITs – could enjoy a particularly brisk recovery.
Also attractive even amid a rising-rate environment are REIT yields, which typically sit around 3% to 4% – far more income than most investment-grade debt at current levels, and enough to still look good even if interest rates head higher several times this year.
The VGSLX portfolio is a basket of REITs that invest in various types of real estate, from office buildings to hotels to self-storage units – and a lot more in between. Top holdings include telecommunication infrastructure REITs American Tower (AMT) and Crown Castle International (CCI), logistics specialist Prologis (PLD), self-storage facility operator Public Storage (PSA) and retail REIT Simon Property Group (SPG).
Note: VGSLX also trades as an ETF, the Vanguard Real Estate ETF (VNQ).
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Vanguard Energy Fund Investor
- Category: Equity energy
- Assets under management: $4.9 billion
- Dividend yield: 3.9%
- Expenses: 0.37%
The Vanguard Energy Fund Investor (VGENX, $41.64) is off to a hot start already this year, and it could be one of 2022's best Vanguard funds if energy maintains its path.
It's certainly expected to, given accelerating demand, constrained supply and geopolitical issues popping up right and left.
Demand for crude oil in 2021 recovered faster than expected from peak-pandemic levels as economies rebounded from the COVID-19 slowdown. Robust economic growth and continued recovery in air transportation in 2022 could drive global oil demand above even pre-pandemic levels.
The Organization of the Petroleum Exporting Countries (OPEC) appears to remain vigilant in keeping a tight grip on output to prop up pricing. Should that persist, and combine with increasing air travell, trucking and consumer demand, we could see even higher oil prices across 2022.
Thus, funds heavy in oil and energy stocks – such as VGENX – are expected to do well in the year ahead. Vanguard Energy specifically is heavy in utilities and the integrated and upstream oil & gas industries. Top holdings in its 42-stock portfolio include big energy names such as ConocoPhillips (COP), U.K.-Dutch firm Royal Dutch Shell (RDS.A), and France's TotalEnergies (TTE).
If you want to stick with the best Vanguard funds to ride the energy wave in 2022, then VGENX is a simple way to do so.
Note: VGENX also trades as Admiral Class shares (VGELX).
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Vanguard Dividend Appreciation Index Fund Admiral
- Category: Large blend
- Assets under management: $83.4 billion
- Dividend yield: 1.6%
- Expenses: 0.08%
The Vanguard Dividend Appreciation Index Fund Admiral (VDADX, $44.15) is a passively managed portfolio that focuses on large-cap U.S. companies with the potential to grow their dividends over time. This means shareholders get a heavy dose of high-quality value stocks, which are broadly expected to outperform growth in at least the first half of 2022 if not longer.
What makes VDADX one of the best Vanguard funds for 2022 is a combination of extremely low expenses and attractive risk-adjusted returns.
Vanguard Dividend Appreciation Index Fund, which charges a mere 8 basis points annually (a basis point is one one-hundredth of a percentage point), tracks the S&P U.S. Dividend Growers Index, "which consists of common stocks of companies that have a record of increasing dividends over time," according to VDADX's prospectus.
That results in a portfolio heavy in value stocks (though it does also include high-quality growth stocks) that grow their payouts over time, and typically don't stretch financially to do so. Mega-caps such as Microsoft (MSFT), Home Depot (HD) and JPMorgan Chase (JPM) are among top-10 holdings.
Note: VDADX also trades as an ETF, the Vanguard Dividend Appreciation ETF (VIG).
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Vanguard Dividend Growth Fund Investor
- Category: Large blend
- Assets under management: $56.4 billion
- Dividend yield: 1.5%
- Expenses: 0.26%
The Vanguard Dividend Growth Fund Investor (VDIGX, $37.86) can be an attractive value play in 2022. This is particularly true for investors looking for an actively managed mutual fund that offers exposure to a diverse mix of dividend-focused companies.
You won't find many high-quality, actively managed mutual funds on the market with expenses below 0.30%. Couple the low fees with a portfolio of value stocks and you get a recipe for a solid choice for the equity portion of a portfolio built for 2022.
The VDIGX portfolio consists of 42 large-cap stocks with the highest allocation weights given to industrials (20%), healthcare (20%) and consumer staples (17%). As such, shareholders get quality holdings like discount retailer TJX Companies (TJX), blue-chip insurer UnitedHealth Group (UNH) and consumer products giant Colgate-Palmolive (CL).
With this fund's dividend focus, you're not going to see many growth stocks, which means you won't see as much short-term volatility, either. But fund manager Wellington Management still pulls off solid returns in the long run, which makes VDIGX one of the best Vanguard funds to own in 2022 and beyond.
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Vanguard Extended Market Index Fund Admiral
- Category: Mid-cap blend
- Assets under management: $108.7 billion
- Dividend yield: 1.2%
- Expenses: 0.06%
The Vanguard Extended Market Index Fund Admiral (VEXAX, $124.70) invests mostly in mid-cap stocks, as well as some small caps. This makes it a fine holding for investors seeking a core holding that isn't stuffed full of high-priced, large-cap tech stocks at risk for significant declines in 2022.
The stocks that did the best since the onset of the COVID-induced market malaise in March 2020 will likely perform the worst as the Fed raises rates in 2022. And VEXAX is one of the best Vanguard funds to steer clear of the downside potential of the S&P 500 while still remaining fully exposed to equities.
VEXAX tracks the S&P Completion Index, which consists of about 3,000 U.S. mid- and small-cap stocks. The fund is considered to be a complement to the Vanguard 500 Index Fund (VFINX) because it covers stocks with smaller capitalizations than those in the S&P 500 Index. And together, they offer investors exposure to the entire U.S. stock market. That's how you get the "Completion" moniker.
But in 2022, VEXAX can be used as an alternative, rather than a complement.
The Vanguard Extended Market Index is primarily growth-focused, with a quarter of assets allocated to technology stocks, and another 12% in consumer discretionary. But you also get a healthy dose of healthcare (13%), industrials (14%) and financials (14%). Top holdings include the likes of asset management firm Blackstone (BX), fintech Block (SQ) – formerly known as Square – and cloud-based data platform Snowflake (SNOW).
Note: VEXAX also trades as an ETF, the Vanguard Extended Market ETF (VXF).
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Vanguard Small-Cap Index Fund Admiral
- Category: Small blend
- Assets under management: $140.6 billion
- Dividend yield: 1.1%
- Expenses: 0.05%
The Vanguard Small-Cap Index Fund Admiral (VSMAX, $99.80) could be one of 2022's best Vanguard funds for investors who are OK with taking on a little more risk but want limited exposure to high-priced, large-cap stocks.
Generally speaking, small-cap stocks are a high-risk, high-reward investment. When the economy and/or broader stock market tanks, hunger for risk often tapers off, leading investors to jump into larger, safer companies and bail from smaller, riskier equities.
Conversely, if bullish sentiment returns, small caps are often one of the quickest areas of the market to recover.
VSMAX is a collection of more than 1,500 small-cap stocks diversified across both value and growth styles. That makes it a solid core fund for investors who want long-term small-cap exposure.
Vanguard Small-Cap Index Fund invests in all 11 market sectors, though some more than others. Industrials (19%), consumer discretionary (15%), financials (15%) and technology (13%) enjoy sizable weightings, while telecommunications (2%) and consumer staples (3%) play more minor roles.
Top holdings currently include biotechnology firm Bio-Techne (TECH), oil and gas company Diamondback Energy (FANG) and casino REIT VICI Properties (VICI).
Note: VSMAX also trades as an ETF, the Vanguard Small-Cap ETF (VB).
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Vanguard Inflation-Protected Securities Fund Investor
- Category: Inflation-protected bond
- Assets under management: $41.8 billion
- SEC yield: -1.6%*
- Expenses: 0.20%
While strategists largely see inflation moderating at some point in 2022, Vanguard Inflation-Protected Securities Fund Investor (VIPSX, $14.22) could still end up as one of the best Vanguard funds for 2022 if consumer prices continue to rise faster, and for longer, than expected.
VIPSX holds Treasury Inflation-Protected Securities (TIPS), which are bonds that are indexed to inflation; the principal value of these bonds adjusts for movements in inflation. In other words, when consumer prices rise, TIPS do too; but if inflation levels off or we even see deflation, TIPS will generally struggle.
While TIPS' primary feature is this inflation indexing, they also carry interest-rate risk. Thus, if and when the Fed decides to start raising its benchmark rate, that could bring down the value of VIPSX's holdings.
Still, Vanguard Inflation-Protected Securities Fund and its portfolio of nearly 50, high-credit-quality TIPS should be effective in hedging aggressive inflation. It can be used solely for portfolio diversification purposes, or it can be used to complement a core bond holding that's not expected to perform well in inflationary environments.
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
Note: VIPSX also trades as Admiral Class shares (VAIPX).
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Vanguard High-Yield Tax-Exempt Fund Investor
- Category: Muni national long
- Assets under management: $19.2 billion
- SEC yield: 1.7%
- Expenses: 0.17%
The Vanguard High-Yield Tax-Exempt Fund Investor (VWAHX, $11.65) seeks high current income that is exempt from federal income tax. That makes it ideal for investors looking for tax-free income from bonds held in a taxable brokerage account.
The 1.7% SEC yield might seem on the low side, but remember: that yield is tax-exempt. A traditional, taxable bond fund would need to yield 2.7% to deliver as much take-home income as VWAHX.
What makes Vanguard High-Yield Tax-Exempt a potential winner for 2022 is that it invests up to 80% of its assets in investment-grade municipal bonds. These can achieve higher yields and potentially greater returns in a rising-rate environment, compared to higher-quality corporate bonds and Treasuries, which are found in typical aggregate bond index funds.
Although investment-grade municipal bonds might generally have lower credit ratings, and thus higher default risk, compared to a mix of corporates and U.S. Treasuries, the greater risk for fixed income in 2022 will likely be interest-rate risk, not default risk. That said, VWAHX and its longer-maturity portfolio will hardly be immune from turbulence if rates rise considerably in 2022.
Still, Vanguard High-Yield Tax-Exempt Fund and its high-quality portfolio of muni bonds could be among 2022's best Vanguard funds. It's certainly useful if you don't want to share your income with the tax man.
Note: VWAHX also trades as Admiral Class shares (VWALX).
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Vanguard Ultra-Short-Term Bond Fund Admiral
- Category: Ultrashort bond
- Assets under management: $20.4 billion
- SEC yield: 0.6%
- Expenses: 0.20%
If you're playing it safe, the Vanguard Ultra-Short-Term Bond Fund Admiral (VUBFX, $9.99) is one of the best Vanguard funds you can buy in 2022 ... even if you don't hold it throughout the entire year. In short, this fund is meant to mitigate interest-rate risk while delivering more yield than a typical money market account.
To get an idea of what's in the Vanguard Ultra-Short-Term Bond Fund fund, the portfolio provides exposure to money market instruments and short-term high-quality bonds, as well as asset-backed, government and investment-grade corporate securities. The fund typically maintains a dollar-weighted average maturity of zero to two years.
That results in a pretty low 0.6% current yield for VUBFX. But consider that average money market rates were sitting around 0.07% in December 2021.
We should note that even an ultra-short-term bond fund carries more interest-rate risk than a money market fund. But consider that the 12-month return on the Vanguard Ultra-Short-Term Bond Fund, through Dec. 31, 2021, was 0.13%, which is more than double the average bank savings account rate of 0.06%.
Past performance is no guarantee of future results, but VUBFX is built to minimize volatility while providing a modest sum of income. And if bond markets are particularly challenging in 2022, it should easily beat riskier intermediate- and long-term bond funds.
Note: VUBFX also trades as Admiral Class shares (VUSFX).
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