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Assessing Vanguard's Big Roster of Allocation Funds

The firm has a plethora of good hybrid vehicles.

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Investors who are seeking exposure to U.S. stocks and bonds in a single mutual fund have more than 500 choices across the three domestic-allocation categories. While these three categories have their shares of subpar and so-so offerings--as all groups do--they also include dozens of superior options from across the risk/reward spectrum. But investors have exhibited a pronounced bias toward tame hybrid offerings over the past few quarters. Over the 12 months through Sept. 30, the conservative-allocation category has seen $11.1 billion in inflows, while the moderate-allocation group has seen $13.6 billion in outflows and the relatively new and fairly small aggressive-allocation group has seen $1.9 billion in outflows. (Data includes funds of funds.)

At the same time, Vanguard has one of the biggest and best rosters of domestic-allocation funds around. And the firm recently announced important changes at several of these funds. (The board of trustees for the four Vanguard LifeStrategy funds and Vanguard STAR has approved adjustments to their asset mixes--including larger foreign-equity weightings at all five offerings--and Vanguard STAR just changed its subadvisor lineup.) Therefore, we thought it would be worthwhile to review the strategies, merits, and cash flows of each of the family's 10 domestic-allocation offerings.

Keep Life Fairly Simple
The four funds of funds in the Vanguard LifeStrategy series-- Vanguard LifeStrategy Income (VASIX),  Vanguard LifeStrategy Conservative Growth (VSCGX),  Vanguard LifeStrategy Moderate Growth (VSMGX), and  Vanguard LifeStrategy Growth (VASGX)--have several positive features. For starters, Vanguard doesn't tack an extra layer of fees onto its fund of funds, and all of the underlying holdings have low expense ratios, so these funds rank among the cheapest allocation offerings around. They're exceptionally diversified, because they divide their assets among a set of wide-ranging, index-oriented equity, bond, and hybrid offerings, including  Vanguard Total Stock Market Index (VTSMX) (which provides exposure to 3,400 equities from across the market-cap, style, and sector spectrums) and  Vanguard Total Bond Market Index (VBMFX) (which tracks the Barclays Capital U.S. Aggregate Float Adjusted Index, a broad proxy for the investment-grade U.S. bond market). And the LifeStrategy funds' weightings in those two offerings as well as their overall compositions are consistent with their objectives.

William Samuel Rocco does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.