Vanguard Group Inc. is a mega player in the managed asset sector. Vanguard is the world leader in index-style mutual fund investing, and the two largest mutual funds in existence, the Vanguard Total Stock Market Fund and the Vanguard 500 Index Fund, come from that pool. The company is in control of net mutual fund assets, with assets under management (AUM) worth $2.4 trillion, and continues to add huge new sums each year.

Vanguard was founded in 1975 by John Bogle, who designed the first indexed mutual fund. As of December 2015, it is headquartered in Malvern, Pennsylvania. While studying at Princeton, Bogle discovered the majority of mutual funds could not compete with a broad basket of stocks, namely the S&P 500. He believed, and Vanguard openly accepts, that most fund managers are incapable of consistently winning through an active stock selection strategy.

Even though Vanguard accepts investor money from all demographics and has certain funds that cater to high-net-worth individuals, no other investment manager so actively and successfully targets the average and relatively less-sophisticated investors. It also actively targets long-term investors and has very little by way of high-frequency funds.

A Lipper Insight report in August 2015 showed Vanguard is growing at a clip that none of its competitors come close to matching. Over the first eight months of the year, Vanguard took in more than $140 billion in net new money at the fund-management level. Compare that to the next 10 largest net inflows among other money managers, which was just $124 billion.

Vanguard Investment Philosophy

Vanguard is very clear on its philosophy. There are four key parts to the Vanguard message:

1. Know your goals;

2. Maintain balance;

3. Keep an eye on costs; and

4. Invest with a long-term perspective.

These four big principles do not change, but some of the tactics beneath the big principles can be targeted to do important things. Vanguard CEO Bill McNabb often refers to balance and diversification, though he admitted in 2015 the approach to diversification must be different in a post-Great Recession economy. Part of the new Vanguard approach includes broader exposure to ex-U.S. equity stocks. Investors have responded to the new international pitch. The two largest gainers of the Vanguard fleet in 2015 are the Vanguard Total International Stock Index Fund and the Vanguard Total International Bond Index Fund.

What this philosophy means for the average investor is Vanguard funds tend to be cheap and have large, spread-out portfolios. The Vanguard Group website boasts that Vanguard expense ratios for mutual funds are 82% lower than the industry average as of December 2014. Vanguard has dozens and dozens of equity funds to buy, but just one of these funds has an expense ratio higher than 50 basis points (bps) as of Q4 2015. Investors can buy in at very competitive minimums, and trading is simple on the Vanguard platform.

Vanguard has an excellent public relations campaign built around its culture and philosophy. It keeps things simple and appeals to the average, low-involvement investor. The company often says growth is never the objective; the objective is to make Vanguard the simplest place for people to invest. This basic, attractive strategy is one of the chief reasons Vanguard passed State Street Global Advisors and is catching up to BlackRock Inc. in terms of worldwide managed assets.

Asset Classes Offered

Vanguard is a big name and the company offers mutual funds in nearly every asset class, equity or otherwise. These funds include taxable and tax-exempt funds. Bond funds come in investment-grade, high-yield and balanced target dates. Vanguard includes target-risk funds and managed payout funds. On the equity side, Vanguard funds include large-cap, mid-cap and small-cap strategies. There are international, or ex-U.S., and global, including U.S., funds. There are sector-specific funds, such as the Vanguard Energy and Vanguard Health Care funds. Vanguard has huge, simple funds for growth-, value- and core-style plays.

Performance is strong across all asset classes. Vanguard openly boasts that, for the 10-year period ending in Q3 2015, all of its money market funds, 94% of its bond funds, all of its balanced funds, and greater than 90% of Vanguard's equity funds, for a total of 187 of 202 Vanguard mutual funds, beat their Lipper peer group average.

Top Vanguard Performers

Some funds are great performers regardless of the competition. Others only perform well compared to funds similar to them. Vanguard has winners in both categories, but it is very important to distinguish absolute and relative performance. Investors who change returns without being careful about relative risks and all-in costs can get burned.

Three of Vanguard's top stock funds are closed to new investors, including the Capital Opportunity Admiral Shares Fund, or mid-cap growth; the PRIMECAP Admiral Shares Fund, or large-cap growth; and the PRIMECAP Core Fund, or large-cap blend. Each produced a 10-year average annual return of at least 9.45%. There are other Admiral Shares 10-year top performers that new investors can purchase. The large-cap version is the Growth Index Admiral Shares Fund. There is also the Mid-Cap Index Admiral Shares Fund and Small-Cap Index Admiral Shares Fund.

In the 12-month period between Nov. 30, 2014, and Nov. 30, 2015, several Vanguard funds stood out. Two large-cap growth mutual funds exceeded 7.5% returns: the Vanguard U.S. Growth Fund and the Vanguard Morgan Growth Fund. A small-cap fund, the Tax-Managed Small-Cap Admiral Shares Fund grew at a 6% clip.

Other Notable Equity Funds

Even though Vanguard is famous for indexed funds, there are some very effectively run Vanguard mutual funds with an active approach. These include the Vanguard Dividend Growth Fund, which is run by Donald Kilbride and has an exemplary record; for instance, Morningstar offers a five-star and a gold rating to the Vanguard Dividend Growth Fund for 2015. Another excellent option is the Vanguard Health Care Fund, an industry-best performer and the former brainchild of famous manager Ed Owens. Each of these managed funds charges less than 40 bps and has a sizable enough asset base for traders and long-term investors.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.