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The Independent Adviser for Vanguard Investors
•
November 2015
•
13
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800-211-7641
value. Further, it should be noted that
the sleeve managed by Wellington is
composed of stocks selected by a team
of global industry analysts. So there are
actually dozens of cooks stirring the
pot here.
While the fund’s relative perfor-
mance, as you can see in the chart
above, was strong in the early innings,
it’s faded fast. Okay, I’ll admit that the
active fund has only been around for
just a bit more than four years, but so
far performance doesn’t look anything
more than average. I believe this fund is
another classic case of Vanguard handi-
capping its subadvisors heavily enough
to ensure a boring race.
European Index
Hold.
As if changes across the euro
zone weren’t enough to keep investors
guessing, Vanguard has also changed
the benchmark index for this fund yet
again, taking on a slew of small-cap
stocks in the process; the new bogey is
the FTSE Developed Europe All Cap
index. Based on historical data for the
old and new indexes, the addition of
smaller stocks has only added margin-
ally to performance over the dozen or
so years for which data is available. So,
don’t expect some supercharged index
fund to emerge from this shift.
I’ve never been a big fan of
Vanguard’s sector foreign funds,
because, well, active managers have
shown they can outrun the indexes
pretty darned consistently. What do you
know about Europe that they don’t?
Plus, take a look at the chart to the
right. Over the past 10 years, European
Index’s relative performance against
Total International Stock, as well as
Pacific Index’s relative performance,
has been all over the map and, ultimate-
ly, led you right back to about equal
performance over the entire period.
Finding the right entry and exit points
(you’d want to buy just before the line
starts rising, and sell before it falls),
would be incredibly tough to do. Again,
what advantage do you think you have
over the experts?
Yes, there are ETF shares (VGK)
available. But why bother?
Global Equity
Hold.
Firing AllianceBernstein
may have been one of the best moves
Vanguard’s ever made. (After axing
former
Growth Equity
manager
Turner Investments, that is.) Not only
did AllianceBernstein do a terrible job
running domestic growth stocks, but
since the team was taken off the ros-
ter of this world-stock fund and much
of its portfolio allocation was handed
to Baillie Gifford, Global Equity has
begun to show some of its old luster.
Original manager Marathon Asset
Management generated strong returns
when Global Equity got its start. Today,
Marathon’s allocation in the portfolio
is down to a third of assets, and Baillie
Gifford and Acadian each run anoth-
er third. Since redistribution of assets
occurred around March 2013, Global
Equity has outperformed
Total World
Stock Index
, with about the same allo-
cation of U.S. and non-U.S. stocks, by
about 30%, rising a total 16.5% com-
pared to the index fund’s 12.6% gain.
Interestingly, the fund still hasn’t
performed as well in its new form as
it would have under sole management
by Marathon. That lower line in the
graph above shows Global Equity’s
performance against Marathon’s solo
effort. Relative performance is improv-
ing, however, which bodes well for
shareholders going forward.
I continue to believe that a global
fund can make a great core holding for
those with smaller portfolios who are
looking for exposure to foreign stocks.
But I do think you have to temper it
with at least one or two domestic funds
to avoid excessive foreign exposure.
One thing is clear, though, and that is
that active management can win the
day, and here it has.
Global Minimum Volatility
Buy.
Out of the gate,
Global
Minimum Volatility
has put up terrific
numbers when compared to its global
counterparts. Granted, the fund has only
been open since mid-December 2013,
so the record is short and has taken
place in a period of rising domestic mar-
kets and falling foreign markets, but risk
aversion has worked. From inception
through the end of September, the fund
is up 20.9% versus just 10.8% for
Total
Stock Market
, a
loss
of 7.0% for Total
International Stock Index and a gain of
just 1.6% for Total World Stock Index.
Score one for Vanguard’s actively man-
aged global stock fund.
If I had to summarize what’s made this
fund work so far, it’s that it has outper-
formed more in down markets than it’s
underperformed in up markets. Over
EmergingMkts. Select Stock
vs. EmergingMkts. Stock Idx.
8/11
2/12
8/12
2/13
8/13
2/14
8/14
2/15
8/15
Rising line = EM Select Stock outperforms
0.96
0.98
1.00
1.02
1.04
1.06
1.08
1.10
1.12
Global Equity vs. Marathon
and TotalWorld Stock Index
8/95
8/97
8/99
8/01
8/03
8/05
8/07
8/09
8/11
8/13
8/15
Rising line = Global Equity outperforms
Acadian Asset
Management joins
Marathon on fund
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Global Equity vs. Total World Stock Idx.
Global Equity vs. Marathon Global Equ.
▼
▼
Alliance
Bernstein hired
(third manager)
▼
Baillie Gifford
hired (fourth
manager)
▼
AllianceBernstein
fired
Relative Performance
Changes Quickly
8/05
8/06
8/07
8/08
8/09
8/10
8/11
8/12
8/13
8/14
8/15
European vs. Total International Index
Pacific vs. Total International Index
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
Rising line = Regional funds outperform
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