Vanguard Developed Markets Index Fund

Scorecard
3 / 5 Stars
Lipper
4 4 2 5 4
Zacks Investment Research
2 (Buy)
Standard & Poor's
4 / 5 Stars
TheStreet.com
D+ (Sell)

#26 in Foreign Large Blend

U.S. News evaluated 200 Foreign Large Blend Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned 23.50 percent over the past year, 8.02 percent over the past three years, 11.77 percent over the past five years, and 7.06 percent over the past decade.

Trailing Returns Updated 06.30.2014
Year to date 4.7%
1 Year 23.5%
3 Years (Annualized) 8.0%
5 Years (Annualized) 11.8%
10 Years (Annualized) 7.1%

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Summary

Although it tracks the MSCI EAFE Index, the Vanguard Tax-Managed International fund takes special care to minimize the impact of taxes on investors’ returns.

As of July 03, 2014, the fund has assets totaling almost $45.27 billion invested in 1,382 different holdings. Its portfolio consists of stocks in the MSCI EAFE Index, which includes about 950 companies located in Europe, Australia, Asia, and the Far East.

Double-digit returns in 2009 helped the fund recover from heavy losses during the 2008 financial crisis, but 2010 returns were fairly lackluster. The fund's European holdings detracted from performance. The fund has returned 23.50 percent over the past year and 8.02 percent over the past three years.

Historically, this fund has been a fairly consistent performer, with five-year trailing returns in the top half of Morningstar’s foreign large blend category. However, Morningstar analyst Gregg Wolper notes that the fund’s performance might be hampered by a lack of exposure to emerging markets. As of late 2010, the fund had only 0.8 percent of its total assets invested in emerging markets, compared with the category average of almost 10 percent. “Nearly all actively managed funds [in the category], and some index trackers, do have such exposure,” he says. “As a result, when emerging markets rally more strongly than developed markets, this fund is at a disadvantage.” The fund has returned 11.77 percent over the past five years.

Investment Strategy

This fund uses an index-style approach to invest in the developed markets of the 16 European and five Pacific Rim countries included in the MSCI EAFE Index. According to the prospectus, management uses a sampling method to minimize the impact of taxes on investors’ returns. For this reason, the fund might make portfolio changes for tax reasons and will not always match the index as closely as it otherwise would. However, according to Wolper, the fund’s performance “comes as close to the index’s as a true index-tracker’s would.”

Role in Portfolio

Morningstar calls this fund a “core” investment.

Management

Duane Kelly, a senior member of Vanguard’s indexing team, manages this fund. He also manages Vanguard Emerging Markets Stock Index and Vanguard European Stock Index. Donald Butler joined the fund as comanager in 2008.

Fees

Index funds generally have lower expense ratios than actively managed funds. Vanguard Developed Markets Index Fund has an expense ratio of 0.09 percent.

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Risk

Like all index funds, the fund can’t easily move out of weak stocks or sectors during market downturns.

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