Vanguard’s Most Expensive Funds

Vanguard is known for its selection of low cost, no-load funds but Vanguard does have a few funds up its sleeve for those who are willing to pay more.

These are Vanguard’s five most expensive funds.

Vanguard FTSE All-World ex-US Small-Cap Index Fund Investor Shares (VFSVX)

Fifth most expensive Vanguard fund VFSVXThis fund attempts to track the index of non-domestic, small-cap companies with a high concentration of companies from Europe and the Emerging markets. Due to the high-risk, high-reward nature of small cap companies, the fund is quite volatile.

The top 3 holdings are Subsea 7 SA, The Weir Group, PLC and Athabasca Oil Sands Corp.

Expenses and other caveats:

  • Holding this fund for 20 years will cost you $1100 just in fees whether you make money or not
  • You pay a 0.75% purchase fee to buy into this fund
  • You pay a 0.75% redemption fee when you sell this fund
  • There is a purchase minimum of $3,000 to purchase this fund (unless you buy the ETF variant, VSS)

Vanguard Explorer Value Fund (VEVFX)

4th most expensive Vanguard Fund VEVFXThe fund seeks to invest in largely domestic, small-value stocks. That is, fundamentally strong, but mispriced according to the fund managers. The fund is less than 2 years old and has returned 15.17%, annualized, since inception.

The top 3 holdings are Teleflex Incorporated, Affiliated Managers Group, Inc. and Chico’s FAS, Inc.

Expenses and other caveats:

  • This fund has an expense ratio of 0.57%
  • A minimum investment of $3,000 is required

Vanguard Convertible Securities Fund (VCVSX)

3rd most expensive Vanguard Fund VCVSXThis mutual fund seeks to preserve capital and provide income by investing in bonds that can be converted to stocks at a pre-determined price. The risk is that convertible securities normally have below-average credit rating and are less liquid. An investment of $50,000 in 2001, at the height of the dotcom crash, would’ve doubled to $100,000 in 2011 with this fund!

The top three holdings as of this post are: Gilead Sciences, Inc., SBA Communications Corporation and Micron Technology, Inc.

Expenses and other caveats:

  • The fund carries an expense ratio of 0.68%
  • There is a investment minimum of $3,000
  • If you sell your holdings within a year, there is an additional redemption fee of 1% associated with the sale

Vanguard Emerging Markets Select Stock Fund (VMMSX)

2nd most expensive Vanguard Fund VMMSXMost are aware of Vanguard’s emerging market index fund VEIEX (ETF:VWO), VMMSX is an actively managed emerging markets fund, that Vanguard started offering since June of this year. The fund has multiple advisors and subject to currency risks. As the name suggests, the core of this fund are stocks from BRIC countries.

The top 3 holdings are: Petroleo Brasileiro SA, Gazprom OAO, Samsung Electronics Co Ltd

Expenses and other caveats:

  • The fund has a whopping 0.95% expense ratio!
  • There is a minimum requirement of $3000 to invest in this fund
  • Selling this fund within 2 months will cost you 2% of your sales

Vanguard Market Neutral Fund Investor Shares (VMNFX)

The most expensive Vanguard Fund VMNFXAt the number one spot, we have VMNFX with an expense ratio of 1.80%, which makes it the most expensive fund offered by Vanguard. This fund attempts to achieve beta neutrality, that is, zero correlation to the market in general. The multiple managers of this fund attempt to achieve this using a combination of long and short selling strategies.

The top three holding of this fund are: Chesapeake Energy Corp, Polaris Industries Inc and CVR Energy Inc.

Due to the nature of this fund, the top three holdings could change pretty quickly.

Expenses and other caveats:

  • This fund requires $4,500 every year just in fees! That is $90,000 in 20 years!
  • If you don’t have $250,000 cash lying around, you can’t get in on this. That’s the minimum required to invest in this fund
  • Selling this fund within a year will incur an additional 1% as redemption fee

Performance of VMNFX?

Your $250,000 investment 10 years back in this fund would’ve grown to $255,675 today! That’s a gain of just $5,675 after taxes, distribution and sale! But then, the goal of this fund is not to provide spectacular returns but to help you sleep better!

Performance of these funds against S&P500

So how have these funds fared considering the price you have to pay to hold them? Here’s a hypothetical return of $10,000 invested in these funds for 10 years. (I’ve excluded VMNFX from this since the objective of this fund is very different from the rest.)
Performance of the most expensive Vanguard funds

The most expensive funds are not necessarily the best performing ones.

If you liked this, you may also like: Should You Invest In Vanguard Mutual Funds Or ETFs?

33 thoughts on “Vanguard’s Most Expensive Funds

  1. Those are some crazy fees! Interesting to see how they perform against the S&P, too. Everyone needs to be careful with the fees out there. There are plenty of funds that don’t have such high fees that still perform well, as you point out.

  2. It shows me that it always pays to check fund fees. Funds that require a lot of manpower are going to be relatively expensive no matter who manages them. The market neutral fund requires identifying stocks to short as well as to go long – a lot of expertise!

  3. The amount you listed for fees is insane. However, if you chose option 3 or 5 you would still be doing ok. I am sure I would have chosen option 2 though just because of Murphy’s law.

    I always look at expense fees before investing in a mutual fund but I should follow up on it more closely as that is a variable that can change. I do like morningstar.com for the purpose of evaluating fees.

    Great post!

  4. Interesting to see them stacked against the S&P 500. I think our costliest holding is 0.27% We are evaluating to let Finance engine manage my husband’s portfolio, that would be free for the first 6 months, but would add .30% on top. So we will probably see how they do in the first 6 months and then decide.

  5. I am a big Vanguard fund fan, but I have not used these funds. It will be interesting how these track for a few years.

  6. Wow do those fees add up fast! That bites #3 has a redemption fee but at least the performance is well above the S&P. -Sydney

  7. Index funds are no longer vanilla. These days, there are plenty of new flavors being offered.

    Why? More profitable, one would think. For the firm, that is.

    The beauty of true index funds is that you can earn the market rate of return minus minimal expenses. Thus, you avoid the so-called trap of trying to beat the market. Most managed funds don’t beat the market.

    The non-vanilla index funds that include such fees sure do tap into the strong urge to beat the market. Being average sounds boring, right? I don’t know….I’m still in the camp of going for plain jane index funds with low fees.

    • Index funds take emotion out of investing. That’s what I like about them.

      My money is not at the mercy of the whims of fund managers.

  8. When buying anything, it’s always buyer beware….. and do your homework. Like any fund company, Vanguard has some stinkers. Instead of VFSVX, buy the ETF VSS instead.

  9. Those fees really are painful. It’s great to see these funds stacked against the S&P. But, fees are just one investment consideration. For at least 2/5 funds, the fees appear to be justified based on performance. I wonder, are the S&P returns on this chart inclusive of dividends? They often report S&P performance without considering dividends.

  10. interested to see similar story on Fidelity funds as I have my funds invested through Fidelity only.

  11. Those fee are pretty crazy. I would be interested in see a shorter timeline. I have VWO and it’s not doing so hot. I wonder if VMMSX is doing any better.

    • 10 year annualized return is 2.36% for VMMSX.

      • Yeah, but that’s not entirely true insofar as the fund has only been around since the middle of 2011. It has outperformed VWO in that time, and I say that as someone who recently sold off some of my stake in VWO for a stake in VMMSX. While I’m generally a fan of value investing and low fees in the form of index funds, there are certain investments where I’m open to the benefits of active management. Specifically with emerging markets where there’s such a wide range of options and such volatility, a manager can shift funds around much more strategically. Particularly with some of the BRIC countries slowing down a bit, I like having an active manager to take advantage of that volatility–while also taking advantage of the real emerging markets right now (Thailand, the Phillipines, etc.) that tend to be underrepresented in the index. If the fund underperforms I can always move on from it, but I think this is one of the few actively managed funds where there’s a greater chance of outperforming the index. The primary Vanguard funds that seem to be able to outperform the index are Windsor II, Equity Income, the Wellington, and the Wellesley funds. There are several others worth taking a look at too. Otherwise I’m all about low fee indexed funds. When people like Bogle and Buffet talk, your best bet is generally to take heed of what they have to say.

  12. I’m not one to endorse mutual funds, far from it! But if you really think those fees are “insane”, then you should come and live in Canada. The MER (managment expense ratio) for the average Canadian equity Mutual Fund is over 2.4%, plus the Trailer Fee, plus commissions – and that’s the low end of the scale. It’s no wonder Canadians are getting hosed by the mutual fund industry!

  13. I thought you were a Vanguard spokesperson pushing expensive funds. I saw what you did there. Nice job, expensive doesn’t mean the best!

  14. I love these kinds of analysis. Thanks for putting the time in to make the charts and also make the point that not all vanguard funds are cheap. They did a fantastic job at branding themselves as the low load guys and I’m glad you pointed out that this is not necessarily a fact for all their holdings.

  15. I’ve been a Vanguard customer for a few years now – what I like is that once you get to a certain level, you qualify for the Admiral shares which are even lower in fees than their already-low-fee Investor shares. If I had a (much) bigger portfolio, I’d probably branch out into DFA funds and get some microcaps.

    • If you qualify for Admiral shares, the fees are hard to beat.

      Though DFA funds are not normally available to individual investors, not many know this, but you can get access to DFA funds via Scottrade. Give them a call.

  16. After reading the post, I am no longer convinced that Vanguard is a low-cost fund.

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