Morningstar - Summer 2019 - 75

Strategies

A Healthy Outlook
Low costs and tempered risk give this fund
a long-term edge.
BEST IDEAS: MANAGER

Thomas Lancereau

Vanguard Health Care VGHAX

This article is adapted from the fund's Morningstar Global Fund Report dated
Feb. 22, 2019.

Stats 03/31/2019

A long-tenured manager, a deep analyst bench, a sound process, and very
low fees continue to earn Vanguard Health Care VGHAX a Morningstar Analyst
Rating of Gold.

Morningstar Analyst Rating
Œ

Morningstar Category
Health

Expense Ratio
0.33%

Fee Level
Low

5-Yr Annlzd Return
9.64%

5-Yr % Rank in Cat
52

Morningstar Pillars 03/31/2019

Lead manager Jean Hynes began working on this strategy in 1991 at subadvisor
Wellington Management and started comanaging it with longtime lead
manager Ed Owens in 2008. She became lead manager in 2012 when Owens
retired. She is backed by strong analytical resources, including industry veteran
analysts Ann Gallo and Robert Deresiewicz. The team was strengthened
even further in 2018: Wellington hired one additional analyst and two research
associates as it promoted two former research associates to an analyst
role, bringing the team supporting Hynes to a total of eight analysts and three
research associates.

Performance
∞ Positive

People
∞ Positive

Parent
∞ Positive

Price
∞ Positive

Growth of 10K 03/31/2019

$16K
14.39

Morningstar US Health Care

13.05
12
Vanguard Health Care
10
8
04/2016

04/2017

04/2018

Morningstar Style Box 12/31/2018

Morningstar Ratings 03/31/2019

Fund Centroid
weighted avg. of Period
equity holdings
3-Yr
Zone
5-Yr
75% of fund
equity holdings 10-Yr

Micro Small Mid Large Giant

The investment process capitalizes on this deep industry knowledge. Bottomup, it focuses on innovative companies, with differentiated products
or services and low valuations relative to their growth prospects. The team
clearly has a long-term mindset-portfolio turnover was 11% in 2018-
and looks for opportunities across different healthcare industries, resulting
in a relatively more diversified portfolio than many peers, especially
biotechnology-heavy funds. The strategy also has more exposure to foreign
stocks than the typical peer, 25% in September 2018 versus 8%. However,
it also is more focused on large caps. Its exposure to small caps was
only 1.7%. The strategy size surely prevents it from venturing too far down the
market-cap scale. Yet, that has not impeded its success over time as
the team has generally favored larger companies even when the asset base
was lower.

Process
∞ Positive

Mstar
Return

Mstar
Risk

Mstar
Rating

Below Avg Below Avg QQ
Average

Low

QQQ

Average

Low

QQQ
QQQ

Overall Rating

Deep Core Core Core High
Value Value
Grwth Grwth

Market Cap Exposure 12/31/2018

Overall, investors have had a less bumpy experience here than those in other
healthcare strategies. The strategy's Sharpe ratios over five, 10, and 15
years through January 2019 are ahead of the US health Morningstar Category.
It has outperformed its MSCI ACWI Health Care Index benchmark both
in absolute and risk-adjusted terms over those periods, too. Low fees give
the strategy an ongoing headstart over its rivals. K
Thomas Lancereau, CFA, is a director of fund analysis with Morningstar Research Services.

Sectors

■ Fund

❙ Category Average

Giant
Large

Micro

38.58

28.46

Medium
Small

44.31

31.71

15.65
1.44

23.23

16.11

0.02 0.49

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Morningstar - Summer 2019

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