(PUB) Vanguard Advisor

Directors’ Direct Holdings Peter F. Volanakis Minimum invested

Directors’ Commitment to Vanguard Funds Total Funds

Owned Over $100,000 $50,001–100,000 $10,001–50,000

$1–10,000

$2.1 million

Volanakis McNabb* Gutmann Rankin Malpass Loughrey Fullwood Loughridge Heisen Gupta

22 22 18 16 12 11

21 20 14 13 11

0 1 1 2 1 2 0 1 1 0 0

1 1 3 1 0 3 0 0 1 0 1

0 0 0 0 0 0 0 0 0 0 2

No. of funds owned

22

Fees paid

$1.0 million

F. William McNabb III Minimum invested

$2.1 million

6 9 7 6 7 1

No. of funds owned

22

9 8 8 7 2

Fees paid

N.A.

JoAnn Heffernan Heisen Minimum invested

$1.5 million

No. of funds owned

18

Perold

Fees paid

$2.2 million

*Vanguard Chairman. Note: Indicates all funds reportedly owned at the end of 2013. As of July 31, 2014, 2013 director holdings had not been disclosed for three taxable money market funds and Explorer Value.

Amy Gutmann Minimum invested No. of funds owned Rajiv L. Gupta Minimum invested No. of funds owned Fees paid

$1.4 million

16

$1.4 million

investors is PRIMECAP Core , and the active, balanced Wellington is also owned by four. You may recall that I told you earlier this year that there were a couple of notable changes in some of the direc- tors’ holdings, revealed as new disclo- sures were made. The big one, in my view, was the 2013 investment of more than $100,000 in Capital Opportunity by Chairman Bill McNabb. Why he waited until 2013 is beyond me, but he’s had a good ride so far in 2014, with the fund up 7.8% through July. McNabb also made new investments in Emerging Markets Select Stock and Total World Stock Index . And he added money back into Total Stock Market after having apparently sold the bulk of his holdings in 2012. So, how are Vanguard’s directors’ portfolios stacking up? Well, if you view this from 30,000 feet up, you might say that a board with invest- ments in more than 50 funds isn’t mak- ing too terrible a showing. But consider that we really don’t know how big a commitment the directors have made, since the required disclosures are so minimal. I’ll give the directors as a group credit for owning more active equity funds than they don’t own. But own- ership is scattered about—so there’s probably no consensus on perfor- mance (or lack thereof) or on my bone of contention with the multimanager strategy that has, with minor excep- tions, made many of Vanguard’s >

there were no director shareholders in that fund.

$900,000

9

Fees paid

$1.9 million

Spreading the Wealth? So, what do the numbers tell us about how Vanguard’s directors invest- ed their Vanguard money in 2013? First off, it’s probably not a big surprise that the directors have focused their own money on index funds—not active funds. Oh, yes, certain board members own certain active funds, but there’s little consensus. And that means lots of Vanguard shareholders who own Vanguard’s active funds do so without any director actually sitting at the table with us, eating that active cooking. Overall, just 54 funds count one or more board members as shareholders, leaving about 100 without any board representation among shareholders. The bulk of the directors’ money is concentrated in just a few funds. Ten of the 11 board members reporting for 2013 own shares in Total Stock Market , and seven own shares in Total International Index . Six are share- holders at Emerging Markets Index , Intermediate-Term Tax-Exempt and SmallCap Index . Remember that these board members are wealthy, so rather than invest in the taxable Total Bond Market , they’ve chosen a tax- exempt fund with a similar interme- diate-term maturity. But after these funds, the consensus begins to fall apart, as the list on page 12 shows. The only actively managed equity fund to find even four board members as

F. Joseph Loughrey Minimum invested

$750,000

No. of funds owned

8

Fees paid

$901,000

Alfred M. Rankin Minimum invested No. of funds owned Scott C. Malpass Minimum invested No. of funds owned Mark Loughridge Minimum invested No. of funds owned Fees paid Fees paid

$750,000

8

$2.7 million

$730,000

11

$394,000

$700,000

7

Fees paid

$382,000

Emerson U. Fullwood Minimum invested

$660,000

No. of funds owned

8

Fees paid

$1.2 million

André F. Perold Minimum invested No. of funds owned

$110,000

2

Fees paid

$1.6 million

Vanguard’s disclosures, none of the numbers you’ll see here include Vanguard’s three taxable money mar- ket funds, because the last time that data was updated was late 2013 and the numbers disclosed dealt with 2012 ownership. (I should note, by the way, that this doesn’t change things a lot, since only five of Vanguard’s 11 directors owned shares in one or more taxable money funds.) Also missing is data on Explorer Value , for much the same reason. As of the end of 2012,

The Independent Adviser for Vanguard Investors • August 2014 • 13

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