16
•
Fund Family Shareholder Association
DAN’S DO-IT-NOW ACTION RECOMMENDATIONS
4
Small-cap stocks can deliver both big returns and big risks. Be prepared for a correction every
year, but stick with
Capital Opportunity
and
Selected Value
. (See page 6)
4
Managed Payout
has been overhauled over the past year, but I still wouldn’t invest in this mov-
ing target. (See page 4)
4
The allure of sector funds is fleeting. If you are going to play sectors, you had better have a disci-
plined strategy. I’m still partnering with
Health Care
for the long run. (See page 1)
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Daniel P. Wiener
is America’s leading expert on
the Vanguard family of funds. He is founder of
the Fund Family Shareholder Association and
chairman and chief executive officer of Adviser
Investments, LLC, a Newton, Massachusetts,
investment advisory firm (800-492-6868). As
editor of
The Independent Adviser for Vanguard Investors
, he is
a five-time recipient of the Newsletter Publishers Foundation’s
Editorial Excellence Award. He also edits the annual
Independent Guide to the Vanguard Funds.
Mr. Wiener is often
quoted in the nation’s leading financial publications.
Jeffrey D. DeMaso,
Editor/Director of
Research, works directly with Dan Wiener
researching and writing the multiple-award
winning
Independent Adviser for Vanguard
Investors
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oversee $2.7 billion in assets. Jeff graduated
magna cum laude
from Tufts University with a B.A. in economics in 2006, holds
the Chartered Financial Analyst designation and is a member
of the CFA Institute and the Boston Security Analysts Society.
diversification I can live without.
So can you.
Hopefully, at this point, I’ve con-
vinced you that sector investing isn’t
easy. So maybe you are now thinking
that you’ll just make a small bet. But
will a 3% position in Precious Metals &
Mining or REIT Index really move the
needle in your portfolio? My feeling is
that if you’re going to invest in a sector
fund, you’d better put some meat behind
it. That means a good 5% minimum and
probably more like 10%. Of course, that
could get pretty dicey if things go south.
Remember, if we are really being honest
with ourselves, we’ll acknowledge that
far fewer than 100% of our investment
decisions work out as planned.
Sticking with a sector that’s out of
favor is tough. I’ve regularly allocated
5% to 10% of my
Model Portfolio
assets to Health Care, and it has been
a great and complementary component
of those portfolios over time—in no
small part thanks to the talented team at
Wellington. (I would not be as sanguine
about the health care index options.)
The allocation to Vanguard’s original
Health Care is one bet I’m willing to
make, consistently.
n
Correlations Change Over Time
Current
Min
Avg.
Max
MSCI Consumer Discretionary
96% 79% 89% 96%
MSCI Consumer Staples
67% -10% 62% 90%
MSCI Energy
90% 30% 60% 91%
MSCI Financials
93% 53% 82% 95%
MSCI Health Care
85% 22% 69% 89%
MSCI Industrials
93% 77% 90% 97%
MSCI Information Tech
91% 58% 86% 95%
MSCI Materials
90% 44% 78% 96%
MSCI REIT
70% -2% 53% 87%
MSCI Telecom
34% 32% 68% 85%
MSCI Utilities
27%
0% 45% 75%
S&P Global ex-U.S. Property
73% 37% 69% 92%
Active Funds
Energy
90% 28% 60% 92%
Precious Metals & Mining
54%
7% 47% 84%
Health Care
80% 34% 72% 91%
Note: Based on returns from June 1992 through Apr. 2014 (Jan. 1995 start for REITs). Sources: MSCI, S&P and Wilshire. Analysis: FFSA.
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