Vanguard Equity Income Fund Review

Lowest Fees plus High Quality Funds makes Investing with Vanguard a no-brainer

If you are looking to bolster the income produced by your portfolio, one of the best Vanguard mutual funds you can sink your money into would be the Vanguard Equity Income Fund.

The Vanguard Equity Income Fund invests primarily in stocks that pay dividends and the goal of the fund is to produce an above-average level of income.  This vanguard equity income fund review will give you an overview of the fund, touch on the asset allocation, look at the fees, management, performance and provide an investment recommendation.

Let’s begin the Vanguard Equity Income Fund Review

VEIPX Overview

Like we stated above, this mutual fund is aimed at providing you with an above-average level of income by exposure to stocks that pay dividends.  It is one of the best Vanguard mutual funds in terms of average yield.  The fund targets slower-growing yet higher yielding stocks.  This means that the overall return may not be as high as other funds in a bull market, but the losses will also be smaller in bear markets.  If you have a long-term investment horizon and can tolerate some market volatility the VEIPX would suit you well.

Asset Allocation Of The VEIPX

The Vanguard Equity Income Fund, when looking at an investment matrix will definitely fall into large-cap stocks that are fairly valued or undervalued and pay dividends.  The fund currently holds over 160 different stocks with an average market cap of just north of $100 billion.  The average P/E ratio of the stocks in this fund is 16.7x earnings with an average growth rate of 13.6.  When evaluating a stock, the rule of thumb is that you are allowed to pay up to two times the growth rate which means we could pay up to 27x earnings for this basket of stock and still be pleased with our investment.  The fact that these stocks are trading at a P/E ratio that is almost the growth rate definitely signals a basket of value.  With only a 10% foreign exposure, the majority of the fund is invested in the U.S.

As of October 2014, the top holdings in the VEIPX wer as follows:

  1. Wells Fargo & Co.
  2. Microsoft Corp.
  3. Johnson & Johnson
  4. Exxon Mobil Corp.
  5. Verizon Communications Inc.
  6. Merck & Co. Inc.
  7. JPMorgan Chase & Co.
  8. Chevron Corp.
  9. Apple Inc.
  10. Intel Corp.

The Vanguard Equity Income Fund Fees and Minimums

In true form, the The Vanguard Equity Income Fund comes strapped with one of the lowest mutual fund fees in the business.  The fund requires a $3000 initial deposit and subsequent deposits into the fund need to be at least $100.  The expense ratio for this fund is only .30% which is very low compared to other best income mutual funds.  This fund does not carry a purchase or redemption fee so you are not “front-loaded” or “back-loaded” which can really chew-up your investment dollars.

VEIPX Market Risk

Since The Vanguard Equity Income Fund does invest primarily in stocks, it does carry the risk associated with stocks.  While is is broadly diversified and mainly invested in established, large-cap companies, the fund is still subject to wide fluctuations in share price.  In general, investors with a long-term investment horizon (ten years or more), who are seeking growth in capital and who are prepared for some sharp and maybe prolonged declines would be the target investors for this fund.  ON the flip side, investors who also are interested in potentially high returns that common stocks provide are also encouraged to look at this fund.

The Vanguard Equity Income Fund Past Performance

The average 10-year growth rate on this fund was slightly higher than average at 8.9% and over 10% since its inception.  The fund’s chart definitely mimics the overall market – as it should.

Our Recommendation

The VEIPX is a solid fund and should be a core holding of your portfolio.  Investing in large-cap U.S. stocks that pay dividends is a great strategy and should be part of everyone’s portfolio.