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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 25, NO. 6
Stay Seated Until…
THE U.S. ECONOMY IS AIRBORNE,
but it’s not at cruising altitude yet. That’s why I’m
betting our policy pilots at the Federal Reserve, which meets mid-month, will decide to
continue their ZIRP (zero interest-rate policy) a while longer. What should you do about
it? Zip! Keep your seatbelt on and tune out the nattering of the fellows in the row behind
you (or the pundits on TV) who think they know how to fly the plane better.
Why do I think ZIRP will live on? Well, most recently, the initial revision to first-
quarter economic growth figures signaled that our marginally positive GDP actually con-
tracted by 0.7%. Inflation is being held down by lower energy costs, and while oil prices
have stabilized recently, they are still meaningfully lower than a year ago. Headline CPI,
which includes energy prices, is down 0.1% over the past 12 months. The Fed’s preferred
measure of inflation, core personal consumption expenditures (PCE), has been remark-
ably stable around the 1.5% level for nearly three years. Despite savings at the pump,
consumer spending remains lackluster. For a data-dependent Fed, the data doesn’t signal
a need to change course.
Vanguard economist Joe Davis agrees, telling
Bloomberg
that central bankers will
begin raising the fed funds rate in September and will stop when that rate hits 1%, some-
time in 2016. “The ceiling is 1 percent,” he says. “[The Fed] may be hard pressed to get
above 1 percent over the next three years.”
While Davis is probably right on the September call, I’m not so sure about his predic-
tion of where the data will take us; it’s a stretch to say the funds rate will top out at 1%.
The Independent Adviser for Vanguard Investors
and FFSA are completely independent of The Vanguard Group, Inc.
FUNDS FOCUS >
VANGUARD SELECT FUNDS
For the Select Few
THE
SELECT FUNDS
are Vanguard’s top picks among its family of mutual funds. As
Vanguard puts it, you can “build your portfolio with a few of our well-established, broad-
ly diversified, low-cost funds selected by our Portfolio Review Department.”
Vanguard uses what they call a “proprietary screening process and criteria” of both
qualitative and quantitative measures to determine this select list of funds, so the funds
must be good, right? I don’t think so. Dig a little, and you’ll find that Vanguard isn’t
that forthcoming about exactly what their rationale is for choosing them, and it narrows
its choices dramatically by excluding all manner of funds, such as sector or specialty
funds, or those where it deems cash flows need some control. Vanguard also likes large
funds, I think, since they say that all of their choices were made in part based on assets,
with a minimum of $5 billion for active funds and $10 billion for index funds. Why?
DOW JONES INDUSTRIALS
May Close:
18010.68
STANDARD & POOR’S 500
May Close:
2107.39
4000
4300
4600
4900
5200
MAM F JD NOS AJ J
NASDAQ COMPOSITE
May Close:
5070.03
0.00%
0.01%
0.02%
0.03%
0.04%
MAM F JD NOS AJ J
3-MO.TREASURY BILLYIELD
May Close:
0.00%
1.6%
2.0%
2.4%
2.8%
3.2%
MAM F JD NOS AJ J
10-YR.TREASURY NOTE YIELD
May Close:
2.10%
16000
16600
17200
17800
18400
MAM F JD NOS AJ J
1800
1900
2000
2100
2200
MAM F JD NOS AJ J
AVERAGEVANGUARD INVESTOR*
May:
0.5%
YTD:
3.3%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
MAMF JDNOSAJ J
*See the footnotes on page 2.
Model Portfolios................................................................ 2
Vanguard Doth Protest Too Much..................................... 4
Vanguard’s Call on U.S. Growth........................................ 4
Sell in May? No Way!........................................................ 5
Tax-Efficiency: What About ETFs?..................................... 6
Performance Review.................................................... 8-11
Lots of Funds, Lots of Distributions. .............................. 15
Dan’s Do-It-Now Action Recommendations.................... 16
JUNE 2015
SEE
SEATED
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S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E
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FOCUS
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