Why We Downgraded Vanguard Primecap

Key Morningstar Metrics for Vanguard Primecap

• Morningstar Medalist Rating: Silver
• Process Pillar: Above Average
• People Pillar: High
• Parent Pillar: High

Vanguard Primecap VPMCX continues to benefit from seasoned leadership, rock-bottom fees, and deep research. But even the best can misstep, and subadvisor Primecap Management’s reluctance to cut its losses has lately cost investors, warranting a downgrade of the strategy’s Process Pillar rating to Above Average from High.

This fund, which has spent time in both the large-blend and large-growth Morningstar Categories over the past 20 years, is one of six mutual funds overseen by Primecap that stands out in many positive ways. Primecap is led by investors, not marketers, and keeps its focus on research and portfolio management. Its investment team is well-stocked with industry veterans and newcomers hired for their intellect, curiosity, and range of professional perspectives. The firm is mindful of company valuation, prizes unconventional thinking, and pursues stocks off the beaten path.

The firm is also unique for its extreme patience. It often holds stocks for a decade or more, a rare trait that can pay off when it backs firms with competitive moats, rising earnings, or skilled leadership. Top holding Eli Lilly LLY is a case in point. A long-term orientation also works when a company suffers a steep share-price drop, but its troubles are fixable and fleeting.

But patience has been a double-edged sword for Primecap, whose convictions have sometimes hardened into obstinacy even as investment theses flopped. Corporate executives can prove themselves poor stewards; rivals sometimes erode once-mighty franchises; companies’ sales slide; debt piles up; or a bargain-basement takeover ends the growth story that Primecap was banking on. In these cases, holding firm becomes damaging as the stocks’ prices fall and potential gains elsewhere are foregone.

Mistakes like these explain much of the firm’s lackluster returns over the past five years. It has also faced some stylistic headwinds, with a contrarian bent and slight bias toward smaller-cap companies that have lagged in a market enthralled by momentum and mega-caps.

Even so, the firm’s longer-term track record is admirable, helped by its research-focused culture and Vanguard’s low expense ratio. For investors seeking a differentiated approach to large-cap investing, this fund remains a worthy holding.

Vanguard Primecap: Performance Highlights

The fund boasts an outstanding long-term track record that stretches back to the mid-1980s, when the longest-tenured manager Theo Kolokotrones started. Over the trailing 10 years through June 2025—when all the current team’s portfolio managers were continuously at the helm—the fund gained 13.1% annualized, among the best-performing third in the large-blend category.

Big bets on biotech and semiconductors, which the fund has continuously favored, can sway the fund’s shorter-term results. For instance, the fund’s returns can thrill or disappoint depending on biotech’s performance relative to the market. But the team has also demonstrated skillful stock-picking over the long haul.

Its picks have underwhelmed over the past five years, however. Within hardware, it has preferred Sony Group SONY over the much stronger-performing Apple AAPL. Among online retailers, the firm emphasized Alibaba BABA over Amazon.com AMZN. Adobe ADBE, a fairly large position for more than 20 years, has recently struggled. And although the strategy did well to hold a fairly large stake in semiconductors, it preferred Intel INTC and Micron MU over the biggest winners, Nvidia NVDA and Broadcom AVGO.