Vanguard Dividend Growth Vs. Vanguard Wellington Fund Vs. S&P 500

VDIGX vs. VWELX vs. VFINX

(Updated Dec. 2022)

The news that the Vanguard Dividend Growth Fund(VDIGX) re-opened to new investors escaped me until subscribers on my Youtube channel mentioned it.

Generally, I’m an index type-of-guy but I do appreciate a well-run, low-cost, actively-managed fund too; American Funds and the active funds at Vanguard come to mind.  I also appreciate a fund that limits the amount of assets it takes in, as per the Vanguard press-release:

“Vanguard closed the fund to most new accounts in July 2016, seeking to protect the interests of existing shareholders by reducing cash flow after a period of rapid growth. Cash flow has subsequently subsided and market conditions have changed since the fund’s closing.”

That VDIGX closed to new investors, and is re-opening, tells me it will close again. And so, I wanted to do some research on this fund to see if this was a fund I’d want to own.

Again from the Vanguard press-release:

“Introduced in May 1992, the actively managed Vanguard Dividend Growth Fund is designed to provide investors with some income while offering exposure to dividend-focused companies across all industries. The fund focuses on high-quality companies that have both the ability and the commitment to potentially grow their dividends over time. Reopening the Fund will have no impact on its investment objectives, strategies, and policies, and Wellington Management Company LLP remains the fund’s investment advisor.”

Turns out, this is an amazing fund. Exactly what one would expect from Vanguard.   

$100,000 invested on Jan. 1, 1993 would have grown to $729,794 by Dec. 31, 2018.  The fund only had 5 down years in those 25 as well.  So, not only did you make a lot of money, you didn’t have many down years either.  

In fact, other than 2001 when the fund was down over 19%, it was a whole lot less volatile than the S&P 500 index. For instance, in 2000 when the S&P 500 was down around 9%, VDIGX was UP nearly 19%!

In 2008 when the S&P 500 was down 37%, VDIGX was “only” down 25.57%.   But, don’t forget, the Wellington fund was “only” down 22%.  And in those crazy years of 2000-2002, where both the VDIGX and S&P 500 got knocked around, Wellington only had 1 down year, -6.9% in 2002.

So, I thought it would be fun to do a comparison of all three funds over the last 25 years.

Let’s start with an investment of $100,000 into each fund on Jan. 1, 1993.  How did we do?

As you can see in the table above, VDIGX underperformed both Wellington AND the S&P 500 by a LOT over that time period. You’d be almost $250,000 richer in the S&P 500 and Wellington Fund!  That is a lot of money, indeed.

But before you dump ALL your money into the S&P 500 based on the above, you may want to consider this:

From 2000 through 2018 an investment of $100,000 into the three funds would have more than tripled with VDIGX, almost QUADRUPLED in Wellington and, yet, only a bit more than doubled in the S&P 500.

Interesting, no?

So far, from 1993-2018 and 2000-2018, the Wellington Fund appears the cream of the crop, by far.

But before you throw all your hard-earned money into Wellington based on those two scenarios, you may want to consider this:

From the beginning of 2008, with the HUGE decline that happened, to the end of 2018, VDIGX did significantly better than the other two funds.   

In fact, take out that crazy 2008 and we find:

The S&P 500 reigns supreme again!

What to make of all this?  Well, first and foremost, you simply can’t predict which investment will perform best in the future.  You MUST admit you have no clue. Should you even look at past performance as your guide? Actually, probably not. Why? Because kind of like how climate change alarmists cherry pick the data to “prove” warming, you have to make a determination of what year to start your past performance research.

Start in 1993 and VDIGX looks like a dog compared to VWELX and VFINX.  Yet, start in 2008 and VDIGX smokes ‘em all.  One year later though, and VFINX is back on top.

So, why focus on one year as opposed to another?  It’s ALL in the past after all.  To choose past performance based on X year over Y year is inherently manipulating the data.

However, one of the best reasons to own Vanguard funds is because we know the simplest, most proven way to predict future performance is the fees you pay to invest.  The lower the fees, the better your performance will be.  All of these funds have incredibly low expense ratios AND very high tax efficiencies too.  Tough to go wrong in that regard.

Another thing to consider is that VDIGX only has 41 stocks as of today, Sept. 2019.  That is a VERY concentrated portfolio.

If you want to outperform, concentrated portfolios are what you must invest in.  When that area of your investing focus takes off, you’ll do way better than a broad and diversified portfolio. Of course, when that area of your investments gets hammered, you’ll get crushed much more so.  The more concentrated, the more up, and down, side.  

A portfolio built solely on Amazon stock WAY outperformed.  A portfolio built solely on GE got destroyed. Concentration = risk. No two ways around it. 

Remember, though, there’s nothing wrong with saying, “You know something? I like all THREE funds, let me throw ⅓ into each.”  That’s probably the best path to take. 

Now, be advised, I do own VDIGX.  Just bought into it the other day. That and VTV are my only two holdings.  That’s it.  I do not own Wellington or the S&P 500 index.  Only time will tell if I’m smart, or a loser.  

Stay tuned to find out!

*** UPDATE 12/8/2022

1993-2022

Interesting. Above you’ll notice VDIGX actually had a better annualized return than Wellington yet had less money to show for it.

2000-2022

2008-2022

2009-2022