Introduction
A reader of "Portfolios For The Risk Averse" requested a similar analysis using only Vanguard funds. I liked the idea as I invest heavily in Vanguard funds. While I own mostly mutual funds, for this article when an Exchange-Traded Fund was similar, I went with it to appeal to readers.
Mutual Fund Observer (MFO), Morningstar, and Portfolio Visualizer were used to rate and rank funds for risk as measured by Ulcer Index, risk-adjusted returns as measured by Martin Ratio by Lipper Category. Funds with MFO's Great Owl classification were given preference.
Mutual Fund Observer
Mutual Fund Observer is the starting point for selecting funds that are lower risk based on the Ulcer Index and higher risk-adjusted returns based on the Martin Ratio, among other criteria. Below are the 11 funds that I chose to be in the three portfolios. I excluded "Very Aggressive" funds.
Symbol Lipper Category MAXDD Ulcer Martin APRvsPeer Yield Very Conservative VUSFX Ultra-Short Obligations 0 0 0.4 2.4 VCSH Short-Intmdt Invest Grade Debt -0.1 0.1 20.1 0.6 2.6 BSV Short Invest Grade Debt -0.3 0.1 6.7 0.4 2.0 VTABX International Income -0.3 0.1 25.2 4.7 3.0 BIV Core Bond -1.2 0.5 3.4 1.1 2.9 Conservative VWIAX Mxd-Ast Trgt Alloc Consv -2.9 1.2 2.1 2.7 3.1 Moderate VPU Utility -4.1 1.2 15.7 4.4 3.0 VMNVX Global Small-/Mid-Cap -8.2 3.0 1.9 10.6 2.2 Aggressive VDC Consumer Goods -9.0 3.6 0.9 4.7 2.6 VIG Equity Income -11.0 4.1 1.4 4.7 1.9 VFMV Multi-Cap Core -11.9 4.3 2.1 8.7 2.1
Source: Created By the Author Based on Mutual Fund Observer
Morningstar
I use Morningstar to confirm the fund selection and to take a closer look at recent trends.
Name Ticker Fund Category Rating STDev Rtn 1 Mon Rtn 3 Mon Rtn 12 Mon Vanguard Ultra-Short-Term Bond Fund VUSFX Ultrashort Bond 3 0.3 0.4 1.1 2.9 Vanguard Short-Term Bond ETF BSV Short-Term Bond 2 1.3 0.8 1.8 3.6 Vanguard Short-Term Corporate Bond Index ETF VCSH Short-Term Bond 4 1.5 1.0 3.0 4.6 Vanguard Total International Bond Index Fund VTABX World Bond 4 2.3 1.4 3.2 5.3 Vanguard Intermediate-Term Bond ETF BIV Interm-Term Bond 3 3.6 1.9 4.3 6.1 Vanguard Wellesley Income Fund VWIAX Alloc--30% to 50% Equity 4 4.6 1.2 7.2 6.8 Vanguard Global Minimum Volatility Fund VMNVX World Small/Mid Stock 4 7.6 0.4 10.6 9.1 Vanguard U.S. Minimum Volatility ETF VFMV Mid-Cap Blend -1.3 13.1 8.7 Vanguard Dividend Appreciation ETF VIG Large Blend 3 11.0 -0.9 14.1 9.7 Vanguard Consumer Staples ETF VDC Conservative Defense 4 11.3 1.5 10.8 10.2 Vanguard Utilities ETF VPU Utilities 4 12.0 3.0 9.4 22.1
Source: Created By the Author Based on Morningstar
Portfolio Visualizer
I use Portfolio Visualizer to help select funds and set allocations. These allocations reflect my own biases such as transitioning from short-term bonds to intermediate, high quality bonds, and low allocations to sector funds. Below is the Efficient Frontier which shows the returns for the past 12 months compared to volatility (Standard Deviation). I excluded the Vanguard Real Estate ETF (VNQ), but for many investors it is a good fund for a small percentage of their portfolio. I added it to my watch lists.
Chart #1
The metrics below are mostly of relative value to investors as high volatility will change them significantly from month to month because the Vanguard U.S. Minimum Volatility ETF has an inception date of 12 months ago. The link is provided to backtest portfolio asset allocation, and interested readers can change the allocations to suit their preferences.
My personal preferences is to be between 25% and 35% stock because of the higher risk-adjusted returns. I own and like the Vanguard Wellesley Income Fund and use it as a baseline fund to beat during risk off environments.
Symbol 60% Stock 40% Stock 25% Stock VWIAX VUSFX 10% 10% 15% BIV 10% 15% 15% VCSH 0% 15% 10% BIV 10% 15% 15% VTABX 10% 15% 10% VWIAX 15% 0% 15% 100% VFMV 15% 15% 10% VMNVX 15% 15% 5% VIG 15% 6% 0% VPU 5% 5% 5% VDC 5% 0% 0% Start Balance $1,000,000 $1,000,000 $1,000,000 $1,000,000 End Balance $1,071,502 $1,065,289 $1,054,215 $1,044,636 CAGR 7.2% 6.5% 5.4% 4.5% Stdev 7.6% 5.1% 3.2% 5.6% Max. Drawdown -5.1% -3.1% -1.4% -2.9% Sharpe Ratio 0.68 0.88 1.04 0.45 Sortino Ratio 1.00 1.37 1.85 0.73
Source: Created By the Author Based on Portfolio Visualizer
Chart #2 shows the performance of the three hypothetical model portfolios compared to my baseline fund, the Vanguard Wellesley Income Fund. The model portfolios outperformed both the Wellesley Income Fund and the S&P 500 over the past 12 months.
Chart #2
Source: Based on Portfolio Visualizer
The dashed lines in Chart #3 below are the bond funds. The gold colored line is utilities. The key takeaway is that if the economy tends to worsen, bond performance will likely to continue to outperform. The Vanguard Wellesley Income Fund is a solid fund for a defensive environment.
Chart #3
Tactical Changes
Chart #4 contains the Moving Average Convergence Divergence Indicators. It is not showing positive momentum. With growing evidence of a global slowdown, my suspicion is that there will be better times throughout the year to add stocks to portfolios. There is a valid reason for trading more "riskier" stock funds for less risky stock funds.
Chart #4
Summary
As a Vanguard fund investor looking for stability, these are model portfolios that I like for the intermediate term. I own some of these funds and mutual fund equivalents of others. I will be looking for opportunities over the next year or two to continue moving in the direction of these model portfolios.
This article was written by
Charles Bolin
2.66K
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I use Mutual Fund Observer MultiSearch as the primary tool to analyze and rank funds based on risk, momentum, quality, income, and consistency factors. I classify nearly 300 funds each month by investment buckets for risk and trends. I began contributing to the MFO monthly newsletter in 2019.I retired in June 2022. I am an individual investor and retired engineer with an MBA.
Analyst’s Disclosure: I am/we are long VTABX, VWIAX, VMNVX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I am an engineer with an MBA nearing retirement and not an economist nor an investment professional. The information provided is for educational purposes and should not be considered as advice. Investors should do their due diligence research and/or use an investment professional.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
