Vanguard funds, including exchange-traded funds (ETFs) and mutual funds, allow investors to obtain exposure to equity and bond markets at reasonable costs with highly competitive expense ratios in the fund industry. Vanguard funds typically come with no load fees, and many are available free of transaction fees through numerous investment broker platforms.
The Morningstar rating system is designed to weigh various factors of a fund, such as past performance, management, fees, and the process that a fund uses to select its holdings. Some Vanguard funds have a five-star rating from Morningstar.
The Vanguard Wellesley Income Fund
The Vanguard Wellesley Income Fund seeks to attain long-term growth of income and a sustainable level of current income. The fund allocates about 60% of its assets to bonds, including U.S. Treasury bonds, government agency bonds, industrial bonds, and mortgage-backed securities (MBS). Almost all of the Vanguard Wellesley Income Fund's bond holdings are investment grade. Since the fund has an average maturity of 10.1 years, its bond holdings are subject to interest rate risk. The remainder of the fund's assets are invested in U.S. stocks with a 40% allocation. Equity sectors are diversified amongst 11 categories, including consumer staples, financials, health care, and industrials. The Vanguard Wellesley Income Fund selects equities that have above-average dividends that are expected to grow in the future.
The Vanguard Wellesley Income Fund has experienced management that has a proven track record of delivering strong returns. From 2009 to 2019, the fund has generated an annual average return of 7.98%. The fund has a very low expense ratio of 0.23% and a 30-day SEC yield of 2.56%. It is most suitable for investors who are interested in income investing at a very low cost.
The Vanguard High-Yield Tax-Exempt Fund
The Vanguard High-Yield Tax-Exempt Fund invests its assets in municipal bonds with current income that is exempt from federal income taxes. The fund has a very conservative allocation that favors highly rated municipal bonds with credit ratings of A or above. Only less than 35% of all bonds are rated BBB or below or with no rating, while the remaining 65% of the fund's holdings are A or above. The Vanguard High-Yield Tax-Exempt Fund has an average maturity of 17.9 years, making it sensitive to interest rate risk. As of Jan. 14, 2020, the fund's 30-day SEC yield stands at 2.18%.
From 2009 to 2019, the Vanguard High-Yield Tax-Exempt Fund has generated an average annual rate of return of 5.35%. The fund has a very low expense ratio of 0.17%. The Vanguard High-Yield Tax-Exempt Fund is most suitable for investors who are in very high tax brackets and would like to gain exposure to high-quality bonds exempt from federal taxes.
The Vanguard Tax-Managed Balanced Fund Admiral Shares
The Vanguard Tax-Managed Balanced Fund Admiral Shares seeks to provide exposure to mid- and large-cap stocks of the U.S. equity market. The asset allocation of the fund is 48.5% in stocks and 51.5% in bonds. The bond portfolio consists of federally tax-exempt municipal bonds.
From 2009 to 2019, the Vanguard Tax-Managed Balanced Fund Admiral Shares has generated an average annual rate of return of 8.59%. The fund has a very low expense ratio of 0.09% and a 30-day SEC yield of 1.55% as of Dec. 31, 2019. The average maturity of the fund is 8.7 years.
The Vanguard Tax-Managed Balanced Fund Admiral Shares is best suited for investors who are in higher tax brackets with investment goals of growing principal with the ability to absorb market volatility.