(PUB) Investing 2015

The Independent Adviser for Vanguard Investors

•

December 2015

•

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800-211-7641

get weirder. Under the “Performance

& Risk” section, there’s another, dif-

ferent line graph showing performance

of the two portfolios. There’s just one

problem: The two lines don’t start at the

same time. I’m assuming this happened

because Total International Stock ETF

isn’t five years old. The comparison is

useless.

Let’s keep going. A risk/reward

scatterplot for the two portfolios is

produced using two different scales, so

once again the comparison is tough to

make. In fact, the graphs make it appear

as though the Vanguard portfolio per-

formed better, when in fact, it didn’t.

Again, pretty useless. A more detailed

portfolio “X-ray” doesn’t tell me any-

thing I didn’t know and is probably

way too detailed and technical for most

investors anyway.

Make Me a Report

Now, here’s where it gets even more

interesting. There’s a little “Generate

PDF” button on the bottom of each

page, which I take to mean will make

a nice-looking report out of the three

data tabs I’ve just looked at. I get lots

of options to put into the report, so I

choose them all—why not? This is a

comprehensive analytical tool, right?

This should give me lots of important

data with which to compare my portfo-

lio to Vanguard’s.

Whoa! I get a 161-page report

based on Morningstar data. Incredibly,

there are something like 20 pages of

disclaimers and disclosures. Even my

head was beginning to spin. But as I

went through the report, there were

literally dozens and dozens of pages

of historical prices and distributions

for the funds in the portfolio. Why?

What’s the point? I sit on the invest-

ment committee of a non-profit, and

their former investment manager, a

name-brand firm that coincidentally

was once employed by Vanguard, used

to present reports like this with brain-

numbing statistics that had no rele-

vance to the subject at hand. It’s simply

fluff and padding which is used to lull

the client into believing that all is well.

We fired that firm.

I could go on and on, but here’s one

last thought. I covered the computer

industry for years during its infancy,

spent time in Silicon Valley and still

have plenty of friends and clients in

the tech business. Since I started writ-

ing to you about Vanguard in 1991

a lot has changed, but one thing that

hasn’t changed is the old expression,

GIGO—as in garbage-in, garbage-

out. My experience with the Vanguard

Portfolio Analytics Tool suggests that

GIGO is still alive.

If that tool is any indication of the

care that goes into and the quality of the

advice that comes out of a robo-adviser,

whether it’s Vanguard’s or someone

else’s, then another old saw comes into

play:

Caveat emptor

. May the buyer

(investor) beware.

HAS

U.S. GROWTH

been reborn, and

is it worthy of investor dollars? The

short answer is that it’s on the right

trajectory, but its performance remains

somewhat erratic.

It’s been five years since Vanguard

finally put shareholders out of their mis-

ery and fired the incompetent managers

at AllianceBernstein. Since then, with

the addition of Wellington Management

and Jackson Square Partners (formerly

a Delaware Investments team) to the

remaining duo fromWilliamBlair &Co.,

and the subsequent addition (through the

merger in February 2014 with

Growth

Equity

) of teams from Baillie Gifford

and Jennison Associates, performance

has begun to show glimmers of hope.

But I’m not ready to put my own

money into U.S. Growth and wouldn’t

advise you do so yet, either. For growth

stocks picked by some of the finest

managers on the planet, I’m still more

than happy to hand my money over to

the team at PRIMECAP Management,

either through Vanguard’s offerings or

directly into their

PRIMECAP Odyssey

funds. No, I’m not moving money into

U.S. Growth despite it’s being named

the

October Hot Hands

fund (see the

story on page 1). But I am keeping my

eye on it, and I’ve raised my rating to

Hold

from

Sell

. Here’s why:

First off, you can see in the first

relative performance chart that, in its

early reincarnation, U.S. Growth has

had a hard time getting ahead of its

bogeys. Compared to

Growth Index

which tracks a CRSP index of large-

cap growth stocks, and its own Russell

1000 Growth index benchmark, the

fund outperformed, underper-

GROWTH

The Five-Year Report on U.S. Growth

Better But Not Buyable

9/10

3/11

9/11

3/12

9/12

3/13

9/13

3/14

9/14

3/15

9/15

Rising line = U.S. Growth outperforms

0.82

0.87

0.92

0.97

1.02

1.07

1.12

1.17

U.S. Gro. vs. Capital Opp.

U.S. Gro. vs. Growth Index

U.S. Gro. vs. Russell 1000 Gro. Idx.

U.S. Gro. vs. Morgan Growth

U.S. Gro. vs. PRIMECAP

U.S. Gro. vs. Social Index

Has U.S. Growth

Been Reborn?

Rising line = U.S. Growth outperforms

Assets (in millions)

U.S.Gro.vs.Growth Idx.

U.S.Gro.vs.Russell1000Gro. Idx.

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

0.94

0.96

0.98

1.00