Top Vanguard Funds with the Highest Returns in 2025: Complete Analysis

Here’s a secret you won’t hear from most of Wall Street: Keeping it simple can be highly effective. Or, said the “other” way around, adding complexity to your portfolio doesnt guarantee better outcomes.

While I like to keep investing simple, youll never hear me say that investing is easy—it isnt. But if you ask many investors today, they’ll tell you that investing is easy! Just buy the S&P 500 index or, better yet, the biggest tech companies, and you can’t go wrong. Or so the current thinking goes.

Look, buying a fund tracking the S&P 500 index—like Vanguard’s 500 Index (VFIAX) fund or its ETF sibling (VOO)—is a solid long-term approach. But it’s also one that might carry more risk today than you realize.

Why? The index has never been more reliant on just a handful of companies. At the end of September 2024, nearly 35% of 500 Index’s portfolio was invested in just the ten largest stocks. That’s a record over the past (nearly) three decades my data covers.

Chief among the market darlings are the so-called Super (or Magnificent) Seven—Apple, Amazon, Alphabet (Google), Meta (Facebook), Microsoft, NVIDIA and Tesla. If you think those giants will continue to rule the roost forever, this report isn’t for you—just stick with 500 Index or a tech sector ETF like Information Technology ETF (VGT). But if you’re like me, you believe markets are cyclical and trees don’t grow to the sky.

I’ve identified seven funds that can deliver solid absolute returns if the Magnificent Seven continue to run riot. (I’ve also included three substitute ideas for ETF investors.) However, these overlooked, hidden gems could deliver serious market-beating results when the cycle turns.

The PRIMECAP Management team brings everything I look for in an active manager. They are long-term-oriented stock pickers who value independent thinking and build distinct portfolios. They are thoughtful in how they invest and how they run their firm.

PRIMECAP Management was initially hired by none other than Vanguard founder Jack Bogle, Mr. Index himself. He pursued the company after his initial requests to have them join the Vanguard fold were rebuffed. They eventually acquiesced—and, well, the record is strong.

Their longest-run fund, PRIMECAP (VPMCX), has one of the best track records in the entire mutual fund business over the last four decades.

A dollar invested in 500 Index at the end of 1984, when PRIMECAP was launched, was worth $79 at the end of September 2024. A dollar invested in U.S. Growth (VWUSX) over that period would be worth $46. A dollar in PRIMECAP? $162!

If I had to label the PRIMECAP Management team’s approach, I’d call it growth-at-a-reasonable-price, or GARP. The managers look for companies with the potential for strong earnings growth but which are currently selling for less than comparable growth companies. This is often because some negative factors are influencing most investors’ perceptions of the company’s potential.

In contrast to many other growth managers, the PRIMECAP team is willing to wait for the market to recognize the value they perceive. On average, they hold onto a stock for a decade.

Also, unlike other growth managers, there is no star manager here. The PRIMECAP team eschews the limelight. Each of its five managers is responsible for buying and selling within a predetermined slice of the fund. If two managers own the same stock, it will result in a larger position in the portfolio, but each manager is accountable for their own decisions.

The result is a high-conviction portfolio with roughly 170 stocks and around 35% of the assets in its 10 largest holdings.

The other result of the approach is a portfolio that doesn’t look like the market. To outperform the market, you can’t look like the market … but looking different doesn’t guarantee better results—it just guarantees different results.

Since the fund’s inception, PRIMECAP has only outperformed 500 Index 56% of the time on a month-to-month basis—roughly 7 out of 12 months. However, those periods of outperformance have created a long-term market-beating track record.

This means that, similar to how the PRIMECAP portfolio managers are patient with their stock picks, if you’re going to invest here, you must also be disciplined.

PRIMECAP hasn’t exactly lit the investment world on fire lately, but that makes this long-term winner a hidden gem. Allocating dollars to talented managers when they are out of favor can be a recipe for success.

So, let me give you two bonus picks—both run by the same team calling the shots at PRIMECAP: Capital Opportunity (VHCOX) is a slightly more aggressive fund run by the same team, though it’s closed to new investors. PRIMECAP Core (VPCCX) is a lower-risk fund.

BONUS ETF PICK: If you’re looking for an ETF solution, S&P 500 Growth ETF (VOOG) is my pick due to its tilt toward quality companies.

Are you looking to compound your wealth in a risk-aware manner? Look no further than Dividend Growth (VDIGX).

The portfolio manager, Peter Fisher, is carrying on where his mentor (Don Kilbride) left off. He aims to build a portfolio producing a steady, growing stream of dividends. He does this by owning companies that have the ability and willingness to pay dividends and increase those payouts over time.

It’s not about buying the highest-yielding stocks but finding companies that will grow their dividends. Fisher typically owns around 50 stocks and keeps turnover very low.

Think about this for a minute. Quality companies don’t typically pay dividends if their businesses can’t afford to do so (or they go broke). Companies that can continually raise their dividends are those that, presumably, are growing their businesses and doing so profitably. That’s what Fisher is looking for.

The short story is that Dividend Growth has delivered on its goal of providing solid returns with less risk over time.

To put some numbers on it, from the end of April 2006 through September 2024, Dividend Growth returned 514% (or 10.4% per year) and 500 Index returned 530% (10.5% a year).

You may wonder what’s so great about market-like (or slightly below-market) returns. We also have to consider the risk side of the equation, where Dividend Growth shines.

To help illustrate Dividend Growth’s ability to protect on the downside, consider the chart below comparing the dividend fund’s drawdowns (a decline from a prior high) over time to 500 Index’s drawdowns.

Dividend Growth held up better during the most challenging markets of the past two decades: 2007–2008 (the Global Financial Crisis), 2011 (the European debt crisis), 2018 (a near-bear market) and 2022 (the reflation bear market).

The exception is March 2020, when COVID-19 lockdowns began. The market’s decline was too short-lived (lasting about three weeks) for Dividend Growth’s defensive features to come through.

In sum, Dividend Growth has delivered market-like returns with less risk over the full cycle. That’s a good combination for a fund that I recommend as the core of a portfolio.

With a dedicated manager whose own money is invested alongside shareholders and a disciplined investment approach, there is a lot to like about Dividend Growth.

While the fund isn’t going to lead the pack when animal spirits are up and the market is racing ahead, when the cycle turns, Dividend Growth has market-beating potential.

Additional reading: Enjoy my exclusive (lightly edited) conversation with Wellington’s Don Kilbride and Peter Fisher here.

BONUS ETF PICK: If you’re looking for an ETF solution, Dividend Appreciation ETF (VIG) is the answer. The ETF aims to track the S&P U.S. Dividend Growers index, which includes companies with a history of raising dividends. Think of it as S&P’s attempt to distill the Kilbride/Fisher approach into a rules-based, mechanical investment strategy.

International Growth (VWIGX) is one of the multi-managed funds that actually works—though, as with any active strategy, there can be periods when performance lags.

Schroders Investment Management was International Growth’s original manager. In 2003, Vanguard added Baillie Gifford to the mix, handing the Edinburgh-based managers 20% of the fund’s assets. Over the years, Vanguard gradually transitioned more assets from Schroders toward Baillie Gifford. In 2013, Baillie Gifford was responsible for half of the fund’s assets.

As you can see in the chart below, M&G Investments had a brief stint on the fund from 2008 to 2016. But this has primarily been the Schroder and Baillie Gifford show. Today, Baillie Gifford directs about 70% of assets, while Schroder invests the other 30%.

With around 125 holdings and the top-10 stocks soaking up about 30% of assets, this isn’t a bloated portfolio. Both sub-advisers run relatively concentrated portfolios, but Baillie Gifford is the engine that powers International Growth.

The Baillie Gifford team typically owns 50–70 exceptional growth companies with a long-term view. They do not focus on geographic or sector allocation but look to build a diversified portfolio of independent bets.

This approach to investing is all about embracing the asymmetry of stock returns. In English, this refers to the fact that when you buy a stock, the most you can lose is how much you put in, but it’s possible to make multiples of your initial investment if it works out. This means that a few big winners can more than make up for your losers—as any venture capital investor would tell you.

That’s easier said than done, and this approach may not be for everyone. To beat “the market,” you need to be different from the market. Of course, as I said about PRIMECAP, different doesn’t always mean better.

However, International Growth has been Vanguard’s best-performing foreign stock fund since I first purchased it in the Aggressive Portfolio in 2013 (through September 2024)—and it’s not even close. International Growth’s 171% gain is way ahead of the next closest fund, European Index (VEUSX), which returned 111%.

BONUS ETF PICK: If you’re looking for an ETF solution, keep it simple with Total International Stock ETF (VXUS).

U.S. Value Factor ETF (VFVA)

Vanguard has been in the factor game for decades—even if they didn’t call it that—but it launched its family of “labeled” factor ETFs in 2018. I’ve been skeptical of these funds from Day 1. And my hesitancy was justified—none of the factor ETFs have outperformed Total Stock Market ETF (VTI) since their launch.

So, why am I shaking off my doubts and flagging U.S. Value Factor ETF (VFVA) as a top pick for the year ahead? That’s a great question.

I believe U.S. Value Factor ETF provides Vanguard’s “best” exposure to value stocks—giving investors the most bang for their buck.

I’ve demonstrated this in the relative performance chart below comparing U.S. Value Factor ETF to its in-house value brethren.

Since the ETF allocates evenly to large, mid and small stocks, I combined Value Index (VVIAX), MidCap Value Index (VMVAX) and SmallCap Value Index (VSIAX) into one all-cap value “index.” The blue line compares U.S. Value Factor ETF to this average index.

U.S. Value Factor ETF is active, as manager John Ameriks (aided by computer models) constantly picks stocks with relatively low valuations—think price-to-earnings and price-to-book ratios.

Vanguard also offers other active value funds. The red line in the chart below compares the ETF to the average performance of Strategic Equity (VSEQX), Strategic SmallCap Equity (VSTCX), Selected Value (VASVX), Windsor (VWNDX) and Windsor II (VWNFX).

The final line in the chart, comparing Value Index and Growth Index (VIGAX), acts as a barometer of the market environment—signaling when value or growth stocks are in favor. The green line rises when Value Index outperforms and falls when Growth Index leads.

The takeaway is that U.S. Value Factor ETF tended to beat its siblings when value stocks were in favor but trailed when growth stocks were outperforming.

It’s not perfect—for example, the ETF navigated the aftermath of the COVID-19 market shock better than its peers even though growth stocks outperformed value stocks. It’s also encouraging to see that the factor ETF has kept pace with its value siblings the past year (or so) when growth stocks were in favor.

Still, the trend is clear. When the pendulum swings and value stocks are in favor, I expect U.S. Value Factor ETF to be among Vanguard’s best performers.

Additional reading: You can find a deep dive into Vanguard’s factor ETFs here.

As you’ve probably figured out by now, I’m a fan of partnering with the “right” active managers. However, you have to be very selective in choosing managers. Most active managers dont outperform their benchmark indexes or index funds over time.

So, I won’t buy an active manager out of stubbornness or a need to be consistent. Im delighted to own an ETF (or index mutual fund) where I lack confidence or conviction that a fund manager can give us the outperformance we want.

And that’s the situation when it comes to Vanguard’s aggressive small-stock fund options. With less-than-inspiring active funds to choose from, don’t overcomplicate things.

For just 0.05% (five basis points), SmallCap ETF (VB) gives you broad exposure to small-sized stocks in the U.S. in a very tax-friendly manner. Let’s not look a gift horse in the mouth.

So, why SmallCap ETF for the year ahead?

The small-cap index fund has trailed 500 Index over the past decade by the largest margin in three decades. That’s an outlier and an opportunity—if you ask me.

Note: If you prefer mutual funds, go ahead and buy the fund’s mutual fund shares (VSMAX). I’m agnostic about buying a Vanguard index mutual fund or its ETF sibling. I use the mutual fund in the chart because it has a longer history.

Additional reading: You can find a deep dive into Vanguard’s aggressive small stock funds here.

International Core Stock (VWICX)

International Core Stock (VWICX) is my preferred foreign stock fund for conservative investors.

The fund launched in October 2019, with Wellington Management’s Ken Abrams and Halsey Morris—two Ivy League grads—calling the shots. Anna Lundén was named a manager before Abrams’ June 2024 retirement.

Why do I have confidence in a fund when the founding partner has recently departed?

First, to hear Abrams tell it, he had a knack for finding (and partnering with) Wellington’s most talented investors. From the fund’s get-go, Abrams knew he would only be around for five years, so he built a team and process to outlast him.

I’m trusting that he’s done that. Abrams certainly thinks he’s succeeded—not only is he keeping every dollar he’s invested in the fund there, but he’s planning to add to his position!

Second, this strategy isn’t driven by one person’s stock-picking genius.

The process is designed to take advantage of Wellington’s various disciplines and insights. International Core Stock holds between 60 and 100 stocks of the 400 companies screened and selected by Wellington’s research analysts in both emerging and developed foreign markets.

If Wellington’s analysts do their jobs well, Morris and Lundén will pick from an attractive stock basket. Managing a fund involves more than buying good stocks, but that’s certainly a good starting place.

Third, the results have been solid—and exactly as advertised. The managers aim to win over time by participating in bull markets while holding up better in bear markets.

Well, since its launch through September 2024, International Core Stock has outperformed Total International Stock Index (VTIAX) by 2.2% per year. It’s mainly won by controlling risk.

International Core Stock has been the second-best performing of Vanguard’s large-cap foreign stock funds. Only International Growth has done better, though with much more risk—as shown in the drawdown chart below.

Abrams may be gone, but the bottom line is that this remains a solid choice for any investor (particularly conservative ones) looking to add foreign stocks to their portfolios.

Additional reading: Enjoy my exclusive (lightly edited) conversation with the Wellington co-managers—Kenny Abrams, Halsey Morris and Anna Lundén—here.

BONUS ETF PICK: If you’re looking for an ETF solution, keep it simple with Total International Stock ETF (VXUS).

5 Best Vanguard Funds To Buy and Hold Forever [HIGH GROWTH]

FAQ

What Vanguard funds have a 5 star rating?

Morningstar gives many of Vanguard’s funds a five-star rating—the highest rating possible from Morningstar’s rating system. The Vanguard Wellesley Income Admiral allocates over half its assets to a broad mix of bonds. The Vanguard Tax-Managed Balanced Fund Admiral Shares allocates nearly half of its assets in stocks.

Where should I invest $1000 monthly for a higher return?

Mutual funds: Similar to an ETF, a mutual fund allows many people to pool their money to buy a variety of stocks, bonds, or other assets. It’s typically managed by a team of professional investors. Index funds, ETFs, and mutual funds can all be great for easily diversifying a $1,000 investment.

Which Vanguard fund does Warren Buffett recommend?

There are a few S&P 500 ETFs that investors can choose from, but my go-to — and one that Berkshire held in its portfolio until recently — is the Vanguard S&P 500 ETF (NYSEMKT: VOO) because of its low cost. Its 0.03% expense ratio means that investors will pay only $0.30 per year for each $1,000 they hold in the fund.

Which fund has given the highest return?

Name	NAV	5 Yr Returns
ICICI Prudential Commodities Fund Direct – Growth	₹ 48.42 Invest	33.59%
Motilal Oswal Midcap Fund Direct – Growth	₹ 119.71 Invest	33.56%
Invesco India Smallcap Fund Direct – Growth	₹ 48.08 Invest	33.21%
Invesco India PSU Equity Fund Direct – Growth	₹ 80.11 Invest	33.16%