(PUB) Investing 2015

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6 • Fund Family Shareholder Association
The obstacles are bigger overseas
than they are in the U.S., and mar-
ket performance has reflected this. As
I mentioned, stocks in the U.S., where
the picture is clearer and positive, have
outpaced foreign stocks by a wide mar-
gin—in 2014, 500 Index returned 17.7%
more than Total International Stock.
But taking a longer-term view, you
can see that outperformance and under-
performance are cyclical. The first chart
on page 13 shows the relative perfor-
mance of Total Stock Market com-
pared to Total International Stock since
the foreign fund’s April 1996 inception.
When the line is rising, U.S. stocks are
outperforming, and when it is falling,
foreign stocks are outperforming. During
the 1990s, U.S. stocks led the way, but
they conceded market leadership in the
2000s to foreign stocks. The pendulum
has swung back toward U.S. stocks again
over the past seven years or so, but this
won’t last forever.
This performance gap also creates
a divergence in valuations, and today,
U.S. stocks are more expensive than
stocks in, say, Europe or Asia. It should
go without saying that after six years
of gains, you can’t buy U.S. stocks as
cheaply today as you could in 2009.
Broadly speaking, there are better val-
ues to be found in foreign markets.
In addition, the dollar’s strength has
made buying foreign stocks an even
better deal, and when the currency
winds shift, which they always do,
those purchases will look even better
in our portfolios. In sum, it won’t take
that much to go right for investors to
begin taking a more positive view on
overseas stocks.
LOOKING BACK
2014 Year in Review
IN A YEAR MARKED BY MORE RECORD-SETTING stock market highs,
Vanguard kept shareholders on their toes with fund closures, fund merg-
ers, manager hirings and firings, and a redesigned website with plenty of
bugs that still need to be ironed out. The world was awash in violence;
oil prices cratered; interest rates defied the common wisdom; and while
the U.S. economy sped up, China and other global economies slowed
down. It was, to say the least, a busy year. Here’s how I kept track of it.
JANUARY: The original three Managed Payout funds are merged
into one new Managed Payout option, and prior track records are
purged…Vanguard enlists relative web newbie HelloWallet to help
401(k) participants manage their financial affairs and, hopefully, invest
more in their Vanguard accounts…Janet Yellen is confirmed as the new
chairman of the Federal Reserve…The U.S. Treasury issues $15 billion in
floating-rate notes, the first new type of government debt in 17 years…
President Obama launches the myRA, a retirement savings vehicle for
those without 401(k) plans…TOP FUND: Extended Duration Treasury
ETF, 9.7%. WORST: Emerging Markets Stock Index, -7.3%.
FEBRUARY: Specious warnings that 2014 could be setting up for
a repeat of the 1929 market crash blanket the Internet…Growth Equity
is merged into U.S. Growth, erasing an embarrassing performance
history for Vanguard…Facebook drops $19 billion on texting service
WhatsApp…As the month ends, five-year performance numbers come
through without February 2009 (the last down month of the bear market)
in the calculation, and returns soar…Bitcoin exchange Mt. Gox collapses
and millions are lost…TOP FUND: Precious Metals & Mining, 10.2%,
WORST: Telecom Services Index , -0.7%.
MARCH: Having moved troops into Crimea around the end of
February, Russia forces a resolution, supposedly approved by more than
95% of the populace, to secede from Ukraine, catalyzing worries about
another Cold War…Vanguard fires Armstrong Shaw from Windsor II
and adds Pzena Investment Management to Selected Value…Janet
Yellen’s first press conference as Fed chair is marked by a comment that
rates could rise six months after tapering ends, sparking a short-lived sell-
off…Candy Crush Saga-maker King Digital goes public and the stock cra-
ters, showing not all IPOs are moon shots…Hot, hot biotech stocks cool
dramatically as the sector drops more than 10%…TOP FUND: Telecom
Services Index, 5.1%, WORST: Precious Metals & Mining , -3.1%.
APRIL: Tax-Managed International is merged into Developed
Markets Index…A Russian bond sale is cancelled after demand disap-
pears, while S&P lowers Russia’s debt rating to one notch above junk…
High-frequency trading comes to the fore with the end-of-March release
of a new book claiming the markets are “rigged”…Biotech continues
to cool, with Health Care losing 1.9%…Vanguard begins rolling out a
new, low-cost Personal Advisor Service, or PAS, beyond its 2013 beta
launch, a possible competitor to robo-adviser programs now gaining
popularity (in the press, if not in the market)…TOP FUND: Energy, 5.4%,
WORST: Russell 2000 Growth ETF, -5.4%.
MAY: Following April’s move, Vanguard folds Tax-Managed Growth
& Income into 500 Index, reducing the Tax-Managed family to just
three options…The S&P 500 posts several records along with Germany’s
DAX, and on the final day of the month, the Dow also hits a new all-time
high…Also at May’s end, a revised GDP report shows the economy con-
tracted by 1.0% during the first quarter as exports were hit and inven-
tory-building slowed…That said, several economic indicators, including
some housing numbers, suggest the economy is already mending after
a debilitating winter…TOP FUND: Emerging Markets Select Stock,
4.3%, WORST: Precious Metals & Mining, -1.6%.
JUNE: Vanguard adds yet an eighth management team, Arrowpoint
Partners, to Explorer’s agglomeration…The BEA says first-quarter
GDP contracted by 2.9% (though the number will be revised to -2.1%
in the coming weeks)…Oil prices hit a peak near the end of the month,
and Emerging Markets Stock Index also rebounds…The Vanguard
Partnership Plan dividend for 2013 is announced, and at $146.52, it
marks a 12.0% increase, matching the 2012 gain, though asset growth
was up dramatically more…Emerging Markets Select Stock marks
a three-year birthday with active management on top with a total 8.8%
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