(PUB) Investing 2015

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The Independent Adviser for Vanguard Investors • June 2015 • 15 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
money going with the active option. Now,
you might wonder which of these funds
is the preferred fund, and one issue is that
there’s been a sea change in the manage-
ment of International Value over the
past few years, as two of the longer-
tenured management teams were fired
and assets were reallocated among three
groups. Since then, the two funds have
about matched one another, and both
have outperformed the index fund.
So, how to choose? Well, among
Vanguard’s directors, two have more
than $100,000 each in International
Growth, and two directors just put
money into International Value, although
at lesser amounts. 2014 was the first year
that any of the current board members
invested in International Value. Do you
think they see something here?
On the other hand, not a single port-
folio manager at either fund has a dollar
invested alongside shareholders. Now,
given that International Growth’s man-
agers live overseas, you can give them a
pass, since it’s much easier owning assets
in your own country than in another
one, and they may not even be allowed
to invest in this U.S. fund. But what of
International Value’s managers, most of
whom live here? They don’t get a pass,
and fail the “eat our cooking” test.
I’ve owned International Growth
for a long time, and despite the man-
ager round robin amongst the team
at Schroder Investment Management,
I’m not overly concerned, since Baillie
Gifford has gradually taken on fully
half of the fund’s assets, while the
Schroder piece has shrunk to about
one-third. You find International
Growth in my Model Portfolios, so I
guess you know my druthers.
Balanced Index and Wellesley
Income
Here’s a weird combination of bal-
anced Select Funds. Either you can
go with the 60/40 indexed variety of
balanced fund, or you can go the more
conservative, 40/60 active-management
path with Wellesley Income.
It’s really not an either/or in my
book, but rather a question of how you’d
like to see your balanced assets allocat-
ed. Wellesley Income is a fantastic fund
for those who’d like a little more yield
and a little less risk in their portfolios.
As for Balanced Index, I find it
strange that Vanguard hasn’t also put
Wellington onto its Select Funds list.
While the fund may be off-limits to
financial advisers and institutions, indi-
vidual investors can still open accounts
and add money here. But Vanguard is
trying to control cash flows into the
fund, so I guess that’s why they don’t
“select” their best funds for the Select
Funds list, but rather the funds they
want investors to buy, for whatever
reason suits.
You need only look at the chart to
the left, which shows how Wellington’s
managers have run circles around
Balanced Index, generating returns since
the index fund’s inception that are about
35% better. (By the way, that dramatic
dip and recovery you see in the chart
around the year 2000 is the impact of
the technology bubble pushing the index
fund ahead of the active fund, then
DISTRIBUTIONS TO COME
JUNE IS A BIG DISTRIBUTION MONTH, as funds and ETFs that pay out semiannually or quar-
terly will take interest and dividends earned in the first half of the year and, after expenses, dis-
tribute them to shareholders. With so many funds distributing, you’ll need to watch the calendar
and listen to our Hotlines as Vanguard begins releasing actual distribution dates.
Remember that for tax reasons, you don’t want to “buy a distribution,” so if you’re planning
an investment in a taxable account, please hold off until after the “record date,” which is the
date ownership is determined for distribution purposes. (If you’re investing in a tax-deferred
account, you don’t need to worry about this.)
The funds or ETFs that are scheduled to distribute are listed below. Note that there is a
strong likelihood Short-Term Inflation-Protected Securities Index will not make a quarterly
distribution. It hasn’t done so since inception, only eking out tiny year-end payouts, and with
inflation subdued, short-term Treasury yields in the basement, and the fund’s yield underwater,
there’s probably not much for the fund to actually pass on to shareholders.
Distributors: 500 Index, Balanced Index, Consumer Discretionary Index, Consumer Staples
Index, Convertible Securities, Developed Markets Index, Dividend Appreciation Index, Dividend
Growth, Emerging Markets Stock Index, Energy Index, Equity Income, European Stock Index,
Extended Duration Treasury, Extended Market Index, Financials Index, Global ex-U.S. Real Estate
Index, Growth and Income, Growth Index, Health Care Index, High Dividend Yield Index, Industrials
Index, Inflation-Protected Securities, Information Technology Index, LargeCap Index, LifeStrategy
Conservative Growth, LifeStrategy Growth, LifeStrategy Income, LifeStrategy Moderate Growth,
Materials Index, MegaCap Growth Index, MegaCap Index, MegaCap Value Index, MidCap Growth
Index, MidCap Index, MidCap Value Index, Pacific Stock Index, REIT Index, Russell 1000 Growth
Index, Russell 1000 Index, Russell 1000 Value Index, Russell 2000 Growth Index, Russell 2000 Index,
Russell 2000 Value Index, Russell 3000 Index, S&P 500 Value Index, S&P MidCap 400 Index, S&P
SmallCap 600 Value Index, Short-Term Inflation-Protected Securities Index, SmallCap Growth Index,
SmallCap Index, SmallCap Value Index, Social Index, STAR, Target Retirement Income, Tax-Managed
Balanced, Tax-Managed Capital Appreciation, Tax-Managed SmallCap, Telecommunication Services
Index, Total International Stock Index, Total Stock Market Index, Total World Stock Index, Utilities
Index, Value Index, Wellesley Income, Wellington, Windsor II, Windsor, World ex-U.S. Index.
Lots of Funds, Lots of Distributions
Wellington vs. Balanced Index
Rising line = Wellington outperforming
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