![Show Menu](styles/mobile-menu.png)
![Page Background](./../common/page-substrates/page0598.png)
4
•
Fund Family Shareholder Association
www.adviseronline.comWHO SAYS ACTIVE
management
doesn’t work?
After 24 years of providing inde-
pendent commentary on how to invest
at Vanguard, the numbers are in, and
from my vantage point they look pretty
darned good. Of course, I’ll let you
make your own decisions, but I think
this is a great time to reflect on where
we’ve been, and yes, to use past per-
formance as a guide to what lies ahead,
SEC warnings be damned.
This is a particularly good time to
talk about performance, because my
Growth Model Portfolio
has underper-
formed stock market benchmark
500
Index
in five of the last seven years.
Not by that much, mind you, but it’s
lagged. Of course, that same portfo-
lio outperformed 500 Index for nine
straight years previously. So let’s talk
about the long-term record as well as
what’s been happening lately.
First, I don’t think you can argue
with the long-term performance of the
model portfolios, in particular the stock-
heavy
Growth Model Portfolio
and
Conservative Growth Model Portfolio
.
Since inception, those models are up at
annual compounded rates of 12.2% and
10.5%, respectively, versus 500 Index’s
10.1% return. (By the way,
Total Stock
Market Index
didn’t exist when I started
my newsletter, and the
Growth Index
Model Portfolio
hasn’t been around for
the entire 24 years either, so I’ve gener-
ally left them out of this review, but you
can see their results in the table above.)
As you can see in the chart below,
when you compound an annualized dif-
ference of more than 2% over 24 years,
the
Growth Model Portfolio
’s level of
outperformance really shows its stuff.
Heck, the
Conservative Growth Model
Portfolio
, which has been just 83% as
“risky” as 500 Index, using relative
volatility as a measure, has also outper-
formed nicely.
Now, the
Income Model Portfolio,
which holds a good helping of equities
in its mix at all times, is obviously not
the same thing as
Total Bond Market
Index
. Yet, while the increased volatility
that stocks add to that mix means that
your year-to-year performance will differ
greatly, over the long haul, the
Income
Model
’s returns have been quite healthy.
You can find the
Models’
long- and
short-term performance in the table
above. In addition, I’ve put together a
rolling-return analysis that looks at all
the one-, three- and five-year returns
for the
Model Portfolios
since inception
along with the same returns for 500
Index and Total Bond Market Index.
In addition, I’ve shown the worst one-,
three- and five-year returns to give you a
sense of the biggest losses suffered over
the last two dozen years.
Okay, let’s dig a little deeper. On a
calendar-year basis, the
Growth Model
Portfolio
, which I told you hasn’t out-
performed 500 Index too often these
last few years, has actually only outper-
formed the index fund in 12 of the last
24 years, or just 50% of the time. And
on a monthly basis, looking at all 288
months since the model’s inception,
it has only managed to beat the index
fund 54% of the time.
So how is it that with a record that is
barely above a 50% average the
Growth
Model Portfolio
manages to outperform
so substantially? It’s the same reason
that the PRIMECAP Management team
is able to outperform even though its
own record of monthly returns doesn’t
beat the index more than 55% to 60%
of the time—the months of outper-
formance more than make up for the
months of underperformance.
For one thing, the managers that you
and I have invested with in the
Model
Portfolios
have outperformed. Not all
of them, mind you, and not every
month and every year. But they’ve done
well for us, and our strategy of owning
a diversified portfolio of managers in
the
Model Portfolios
has worked in our
24 Years of
Portfolio Performance
12/90
12/92
12/94
12/96
12/98
12/00
12/02
12/04
12/06
12/08
12/10
12/12
12/14
500 Index
Total Bond Market Index
Adviser Growth Model
Adviser Cons. Growth Model
Adviser Income Model
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Annualized Model Performance Over 24 Years
3-year
5-year 7-year 10-year 15-year 20-year Inception
Growth Model Portfolio
19.4% 13.9% 6.8% 8.7% 8.2% 12.2% 12.2%
Cons. Growth Model Portfolio
17.9% 13.1% 6.8% 8.1% 7.4% 10.2% 10.5%
Income Model Portfolio
13.7% 11.4% 6.8% 6.8% 5.6% 8.9% 9.0%
Growth Index Model Portfolio
18.4% 14.5% 6.6% 8.5% 5.7% — —
500 Index
20.2% 15.3% 7.2% 7.6% 4.1% 9.8% 10.1%
Total Stock Market Index
20.3% 15.6% 7.6% 8.0% 4.7% 8.8% —
Total Bond Market Index
2.5% 4.2% 4.6% 4.6% 5.4% 6.0% 6.2%
Rolling Model Performance
Rolling one-year returns
Average Worst
Growth Model Portfolio
13.4% -42.1%
Cons. Growth Model Portfolio
11.3% -37.3%
500 Index
11.1% -43.3%
Income Model Portfolio
9.3% -27.3%
Total Bond Market Index
6.2% -3.7%
Rolling three-year returns
Average Worst
Growth Model Portfolio
11.8% -12.5%
Cons. Growth Model Portfolio
9.9% -10.7%
500 Index
9.5% -16.1%
Income Model Portfolio
8.5% -7.8%
Total Bond Market Index
6.1% 1.8%
Rolling five-year returns
Average Worst
Growth Model Portfolio
11.5% -3.1%
Cons. Growth Model Portfolio
9.5% -2.9%
500 Index
8.8% -6.7%
Income Model Portfolio
8.2% -2.2%
Total Bond Market Index
6.2% 3.4%
PORTFOLIOS
Model Numbers