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The Independent Adviser for Vanguard Investors • November 2015 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
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consumers will have no trouble borrow-
ing for a house or car or other big-ticket
item. Meanwhile, spending continues to
rise, and though GDP expanded at just
a 1.5% annualized pace in Q3 accord-
ing to the first estimate, it already
appears that there’s been a pickup in the
current quarter as the housing market
has strengthened.
Corporate earnings were all over
the map in Q3, but I take some opti-
mism from reports that companies like
FedEx and UPS are going to be hiring
gobs of temporary workers for the
holidays on expectations for a robust
spending and shipping season. With a
bit more than one-third of the S&P 500
companies having reported, profits are
beating estimates. But on a total earn-
ings basis, the extreme drops for the
energy and materials sectors almost
certainly point to an overall earnings
decline for the entire collection of 500
companies.
So from the rearview mirror per-
spective, spending is good, economic
activity is fair, earnings have been
okay (not great), and housing and auto
markets are strong. Now, look at pres-
ent-day numbers on jobs, and you’ll
see why the economy is even stronger
than many pundits think. New claims
for jobless benefits, which are just
a week old (rather than months old)
when reported, are at their lowest
level in over 40 years. Yup, with a job-
less rate of 5.1%, we are pretty darned
close to full employment, which is
just what we (and the Fed) want.
October was also a month of con-
tinuing Sturm und Drang over some
high-flying biotechs, as well as poten-
TREATS FROM PAGE 1 >
tial mergers among drug makers
(Pfizer and Allergan) and drug retail-
ers (Walgreens Boots and Rite-Aid).
Health Care may not have matched
the market’s rise, up 5.8% for the
month, but for the year, its 9.7% gain
is at the top of the heap. As I noted in
my October 1 Hotline, for the first time
since its 1984 inception, the fund’s
managers are being held to a perfor-
mance adjustment on their fees. So
far, so good—they’ve earned a well-
deserved extra couple of million dol-
lars for their work.
The month held plenty of other news
for Vanguard investors. Windsor II’s
Jim Barrow said he would be step-
ping down from that fund at year-
end, though he will remain active on
Selected Value. European Index and
Pacific Index began tracking their
new all-cap benchmarks in October.
Vanguard has been rapidly reducing
its fee waivers on its money market
funds and has now gone on record
saying it won’t try to claw back the
more than $112 million in forgone fees.
Yields on Federal Money Market and
Prime Money Market have risen to
0.06% and 0.08%, respectively, while
Treasury and tax-exempt funds remain
pegged at 0.01%.
Jeff and I will have a full report on
the October Hot Hands momentum
strategy (which, remember, is differ-
ent from the calendar-year Hot Hands
strategy) next month, but for those
who are following this trading plan, the
fund I’ll track going forward is U.S.
Growth .
Remember, no strategy works all
the time—there are no guarantees in
the stock market. Last year’s October
Hot Hands fund, PRIMECAP, earned
a 5.7% return over the past year, com-
pared to Total Stock Market’s 4.3%
return. PRIMECAP Odyssey Growth,
the alternative that I suggested for
those closed out of PRIMECAP, gained
7.0%. Personally, rather than buy
U.S. Growth, I’ll be sticking with my
PRIMECAP Management-run funds.
With year-end fast approaching, so
is “distribution season,” when mutual
funds pay out both income and realized
capital gains they’ve earned over the
course of the year. Vanguard won’t give
a first report until mid-November, but
most U.S. stock funds have exhaust-
ed the losses they booked during the
credit crisis and now dominate the list
of funds with realized gains on their
books, while just one foreign fund,
International Explorer , cracks the top
20 in terms of realized gains. Capital
Value and Explorer, a perennial big
distributor of gains, have realized gains
totaling more than 10% of their quarter-
end prices. With realized losses total-
ing 93% of NAV, Precious Metals &
Mining shouldn’t be distributing gains
anytime soon. n
Market Returns Since the Great Recession
’09 ’10 ’11 ’12 ’13 ’14 ‘15
U.S. Stocks 28.7% 17.1% 1.0% 16.3% 33.3% 12.4% ?
Foreign stocks 36.7% 11.1% -14.6% 18.1% 15.0% -4.2% ?
Bonds 5.9% 6.4% 7.6% 4.0% -2.3% 5.8% ?
Cash 0.25% 0.01% 0.02% 0.02% 0.01% 0.01% ?