Dear Shareholder,
The health care sector outshone the broader global stock market for the fourth straight fiscal year. Against this backdrop, Vanguard Health Care Fund (Trades, Portfolio) flourished: For the 12 months ended January 31, 2015, the fund returned about 28%, notably better than its comparative standards. Its benchmark, the MSCI All Country World Health Care Index, returned about 20%, while the average return of its peers was close to 25%.
In the previous two fiscal years, the fund’s relatively light allocation to small-capitalization biotechnology stocks curbed its otherwise robust returns. Over the recent fiscal year, however, the advisor’s holdings in several industry subsectors-especially pharmaceuticals-put the fund ahead of its benchmark and peers. The Health Care Fund also benefited as large-cap stocks outpaced their small-cap brethren, both in the biotech arena and more broadly.
If you own shares of this fund in a taxable account, you may wish to review the fund’s after-tax returns later in this report.
