(PUB) Investing 2015

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The Independent Adviser for Vanguard Investors • June 2015 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
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It actually could top out much lower
if continued slow growth overseas and
greater dollar strength saps growth here
in the U.S. Whichever way it goes,
even a 1% fed funds rate means interest
rates will remain exceptionally low—
far from anything resembling “tight”
interest-rate policy.
MarketTiming?
So much for the old market chestnut,
“Sell in May and stay away.” May has
seen U.S. stocks’ year-to-date return just
about double since the end of April.
Through April, 500 Index was up 1.9%
on the year; through May’s close it is up
3.2%. I know there are five more months
to go, but this is at least a tripwire for Sell
in May adherents and just one example
of why it can be so hard to follow the
strategy in real life. See page 5 for a full
breakdown of the Sell in May strategy.
With its formal introduction in
May, Vanguard broadened access to
its Personal Advisor Services (PAS),
a robo-adviser with a quasi-personal
touch, to those with just $50,000 to
invest. Before signing on the dotted
line, though, know that you are getting
what your 0.30% fee pays for: Advice
that is controlled from the top down;
plain-vanilla, index-based portfolios
akin to Vanguard’s funds-of-funds; and
a rebalancing feature that doesn’t reduce
risk that much, does reduce returns and
could create a tax liability. Vanguard will
only recommend Vanguard, but you can
forget about being advised to invest with
the firm’s best active-fund managers.
In fact, PAS is a more expen-
sive Target Retirement or STAR
LifeStrategy portfolio with a side order
SEATED FROM PAGE 1 > of advice. From a performance and a
tax standpoint, clients may do better
investing in one of Vanguard’s funds-
of-funds, where cash flows provide
automatic rebalancing without having
to rejigger the portfolio.
While Vanguard can’t seem to get
their municipal bond index fund off
the runway, it did launch Alternative
Strategies at the end ofMay.Alternative
Strategies has several components—
a long-short stock strategy, an event-
driven strategy, and a strategy to cap-
ture mispricing in the bond markets.
Oh yeah, and they’ve got commodity
contracts and currencies in there, too.
Manager Michael Roach, of Vanguard’s
quant team, is expected to use leverage
to amplify his investments.
But before you get all hot about
Vanguard’s entry into an area it has often
critiqued as inappropriate for most indi-
vidual investors, recognize that (a) the
fund has a $250,000 minimum, which
means it will be out of range for all
but the 1%, and (b) it’s being launched
primarily for use by Managed Payout,
which has been investing in com-
modities through the PowerShares DB
Commodity Index Tracking Fund (tick-
er: DBC) and long-short strategies
through Market Neutral.
I’ll be curious to see what informa-
tion and disclosure Vanguard provides
on the fund; it’s a chance to peek into
an area not typically known for trans-
parency. It is far too soon to generate
an opinion (and rating) on the new
fund. That $250,000 minimum may be
a blessing for most investors.
One Erg
Chalk one up (a small one) for
Energy. An excellent fund, though
it has suffered under the weight of
crashing oil prices and is off 20.3%
over the past year, it finally has a
new Vanguard board member as a
shareholder. The last board member to
own shares was Peter Volanakis, who
bought during 2010 and sold in 2012.
Former Vanguard Chairman Jack
Brennan traded into the fund at one
time before retiring, and now JoAnn
Heisen, a board member since 1998,
has reported having between $1 and
$10,000 invested in the fund as of Jan.
31, according to a recent regulatory
filing. No, that’s not a typo. She also
opened an account in REIT Index
over the past year, with the same
range of ownership reported. Just FYI,
Karl Bandtel, who runs Wellington
Management’s portion of the fund
has reported holding more than $1
million in shares for years. None of
the Vanguard managers running their
small piece of the fund has invested a
nickel. As you surely know, I believe
that managers who eat their own cook-
ing know best, and that directors who
don’t aren’t living up to their fiduciary
responsibilities.
Last but not least, Diversified
Equity , that agglomeration of active
funds and managers, may have set a
record in May with the addition of
its 51st manager. Ben Silver joins
the team at Pzena running a piece of
Windsor. From inception through the
end of May, just 10 days short of its
10th birthday, the fund has returned
119.4%, lagging the 124.0% return
from Total Stock Market. As I asked
when the fund was first introduced,
what’s the point? By the way, none
of Vanguard’s directors own a single
share of this one, either. n