VDE vs VGENX? Why is VDE so much better?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
kareysue
Posts: 74
Joined: Fri Oct 10, 2008 10:07 pm

VDE vs VGENX? Why is VDE so much better?

Post by kareysue »

For my parents they own both since they work in the energy sector. But I notice lately VDE is doing pretty well but VGENX has done poorly and VGENX seems to be holding much more cash. I thought they were both energy funds by vanguard and have similar investment approaches
User avatar
grabiner
Advisory Board
Posts: 29139
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: VDE vs VGENX? Why is VDE so much better?

Post by grabiner »

kareysue wrote: Wed Dec 02, 2020 8:53 pm For my parents they own both since they work in the energy sector.
This is a reason for them to avoid the funds; if their company gets into trouble, they may lose their jobs at the same time their stock portfolio declines. (A stronger example of the same principle is that you should not hold too much stock in your own employer.)

But the most important difference between the two is that VGENX is free to hold energy stocks from anywhere in the world (five of its top ten holdings are foreign), while VDE is an index of US energy stocks. US stocks have outperformed foreign stocks recently, and thus the all-US fund has performed better.
Wiki David Grabiner
dbr
Posts: 34827
Joined: Sun Mar 04, 2007 9:50 am

Re: VDE vs VGENX? Why is VDE so much better?

Post by dbr »

I don't know how those funds actually differ in management and composition, but any difference between them is surely within the range of random variation of return performance and varies over time periods. You can use Portfolio Visualizer and compare over different time intervals.

Historical return of a fund for any particular periods of time is not a useful way to choose one fund over another for an investor.

You might also note in Portfolio Visualizer the datum called STDEV which is the standard deviation of annual returns. This measures how much the return tended to vary from year to year in the period studied. For example for 2015-2020 the compound average annual growth rate (CAGR) for the two funds was -9.95% for VDE and -6.36% for VGENX but the standard deviations were on the order of 20%-30%. In crude terms that means the return in any given year could be 20%-30% points above or below the average estimate, or even more than that. It also means that an estimate on the uncertainty of the CAGR for data in five year period might be +/-10% points or so. This means -10% and -6% for that five year period are not different numbers.
annu
Posts: 966
Joined: Mon Nov 04, 2019 7:55 pm

Re: VDE vs VGENX? Why is VDE so much better?

Post by annu »

I am not sure besides the fact they are both energy sector, there is a lot more common between the 2 funds. Look at top 10 holdings for both funds, including how much those top 10 holdings account for overall fund.

Vanguard Energy Fund Investor Vanguard Energy ETF
As-of date 10/31/2020 10/31/2020
1 Royal Dutch Shell plc Exxon Mobil Corp.
2 TOTAL SE Chevron Corp.
3 Duke Energy Corp. ConocoPhillips
4 NextEra Energy Inc. Kinder Morgan Inc.
5 Iberdrola SA Williams Cos. Inc.
6 Enel SPA Phillips 66
7 BP plc EOG Resources Inc.
8 Southern Co. Schlumberger NV
9 Marathon Petroleum Corp. Marathon Petroleum Corp.
10 Exelon Corp. Valero Energy Corp.
% of total net assets 41.40% 70.30%
000
Posts: 4625
Joined: Thu Jul 23, 2020 12:04 am

Re: VDE vs VGENX? Why is VDE so much better?

Post by 000 »

kareysue wrote: Wed Dec 02, 2020 8:53 pm But I notice lately VDE is doing pretty well but VGENX has done poorly and VGENX seems to be holding much more cash.
You have a case of recency bias.

According to Portfolio Visualizer, VGENX has outperformed VDE starting from Jan 2005, 2018, 2019, and 2020 (all the ones I spot checked) to today.

Over the last month or two, VDE may have outperformed. I recall VGENX tweaking its strategy back in September: reducing exposure to US Oil Majors and diversifying further. That may have been "selling low".
dbr
Posts: 34827
Joined: Sun Mar 04, 2007 9:50 am

Re: VDE vs VGENX? Why is VDE so much better?

Post by dbr »

grabiner wrote: Wed Dec 02, 2020 9:20 pm
kareysue wrote: Wed Dec 02, 2020 8:53 pm For my parents they own both since they work in the energy sector.
This is a reason for them to avoid the funds; if their company gets into trouble, they may lose their jobs at the same time their stock portfolio declines. (A stronger example of the same principle is that you should not hold too much stock in your own employer.)

But the most important difference between the two is that VGENX is free to hold energy stocks from anywhere in the world (five of its top ten holdings are foreign), while VDE is an index of US energy stocks. US stocks have outperformed foreign stocks recently, and thus the all-US fund has performed better.
Depending on whether it is even a valid statement that VDE has outperformed VGENX in any particular period of time. I'm not sure for what period of time that is even true. The YTD return of VGENX is -31% and of VDE is -34% so VGENX is currently outperforming VDE, if you want to call it that. The SEC yield of VDE is higher. Maybe that is what someone has in mind. The CAGR of VDE since inception in 2004 is a whopping 2.18% VGENX has returned about 2.9% in that same period. Numbers are subject to some juggling around depending on exact dates.

I would hold with the view that there is no meaningful difference in the performance of the two funds, certainly not as an estimate of future performance.
Post Reply