Vanguard Tax-Managed Growth & IncVTGIX

Morningstar Rating

Fund Research and Analysis

by Harry Milling

Vanguard Tax-Managed Growth & Income tracks a storied index with less tax burden.

The fund will hold substantially all of the components of the S&P 500, but there's a tax twist. The strategy aims to sell some holdings more than others to realize losses and offset future capital gains. Read more

Kudos

The fund's ultralow expenses give it a built-in advantage over its rivals.

The fund's aftertax returns are excellent relative to its peer group.

Pretax returns and volatility have been in line with the S&P 500.

Broad diversification. Read more

Risks

This fund focuses on giant-cap stocks, so it will likely lag when small caps rule the roost.

The fund is unlikely to shoot the lights out, given the portfolio's wide diversification across sectors and names.

Because management sells high-cost shares to realize losses that can be used to offset gains, the fund courts the risk of tracking error during subsequent 30-day periods (during which, for tax reasons, it can't repurchase the stock it sold). Read more

Strategy

The fund attempts to mimic the S&P 500. To minimize capital gains distributions, its manager may sell stocks at a loss to offset gains, liquidating the highest-cost shares first. The fund also takes steps to deter market-timers, whose activity can lead to more selling, by imposing redemption fees on short-term investors and by requiring a $10,000 minimum investment. Read more

Management

Michael Perre took over this fund early in 2006. He's been with Vanguard since 1990 and has managed the equity portion of Vanguard Tax-Managed Balanced VTMFX since 1999. This fund's former manager, Gus Sauter, who also is Vanguard's chief investment officer and index expert, still supervises Perre and other members of Vanguard's quantitative equity group. Read more

Inside Scoop

Nothing fancy here. Management constructs a sample of the S&P 500 while avoiding capital gains payouts by actively harvesting losses. Read more

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