The Independent Adviser for Vanguard Investors
•
September 2014
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15
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HUMANERRORCREEPS
into all kinds of
transactions, and when you’re Vanguard,
with lots of humans and lots of transac-
tions, well, you know what’s bound to
happen. But there’s human error and then
there’s what one FFSA member I’ll call
John (he asked I not use his real name)
refers to as a “monumental screw-up.”
And, though he’s been waiting since
February for Vanguard to make more
than a cursory apology and explana-
tion, John, a Vanguard shareholder for
decades, says Vanguard has simply
refused to take ownership other than
to say the problem was “human error.”
Here’s the story in a nutshell. I’m
repeating it here because there’s a les-
son for all Vanguard investors in partic-
ular, and investors at large, as we deal
with ever-larger financial fiduciaries.
On the advice of his dad, John’s son,
also named John, opened an account at
Vanguard by printing out a deposit slip
from vanguard.com and mailed it in with
his check for $29,000. But when the
slip was received, someone at Vanguard
opened a new account in the fund in
the father’s name but didn’t deposit the
money into it (the money went into the
son’s account). However, now that the
father’s new account was established and
was supposed to have $29,000 in it but
hadn’t been funded, Vanguard decided
the account was in debit. So, they liter-
ally sucked $29,000 out of the local bank
account tied to John senior’s Vanguard
account, without his authorization.
The issues here are myriad. First, as
far as I can tell, Vanguard has no right to
suck money out of a linked bank account
unless you authorize them to do so.
John says he doesn’t recall ever taking
money from his local bank and send-
ing it to Vanguard. He only moves
STEWARDSHIP
Vanguard Speak
DISTRIBUTIONS TO COME
Quarterly Payouts
HOW QUICKLY the year flies by. September
brings the third quarterly installment of
distributions for a host of Vanguard funds
and is the last payment before the year-end
income and capital gains season.
As always, my recommendation is that
taxable investors not reinvest their distribu-
tions automatically, but rather have them
paid into a money market, and from there,
use the cash to make slight rebalancing
tweaks to their portfolios.
In the list below, remember that all share
classes of a fund will pay out during the
month. I’ve listed ETFs where open-end
Investor or Admiral share classes are not
available.
500 Index
Balanced Index
Convertible Securities
Developed Markets Index
Dividend Appreciation Index
Emerging Markets Stock Index
Equity Income
European Stock Index
Extended Duration Treasury ETF
Financials Index
Global ex-U.S. Real Estate Index
Growth Index
High Dividend Yield Index
Inflation-Protected Securities
Large-Cap Index
LifeStrategy Conservative Growth
LifeStrategy Income
MegaCap ETF
MegaCap Growth ETF
MegaCap Value ETF
Pacific Stock Index
REIT Index
Russell 1000 ETF
Russell 1000 Growth ETF
Russell 1000 Value ETF
Russell 3000 ETF
S&P 500 Growth ETF
S&P 500 Value ETF
Short-Term Inflation-Protected Securities
Target Retirement Income
Tax-Managed Balanced
Total International Stock Index
Total Stock Market Index
Total World Stock Index
Utilities Index
Value Index
Wellesley Income
Wellington
World ex-U.S. Index
World ex-U.S. Small-Cap Index
shorter line rises when the Odyssey fund
outperforms Capital Opportunity.) I’ve
also marked the points where Capital
Opportunity was closed and reopened in
2000, 2001, 2004 and 2013.
It turns out though, that while the
PRIMECAP and Capital Opportunity
portfolios are similar, with about 75% to
80% of each fund’s holdings also found
in the other’s, the Odyssey fund’s port-
folio isn’t as different as its performance
might suggest. Many of the stocks found
in Capital Opportunity can also be found
in the Odyssey fund (about two-thirds
according to data from the end of June).
But how those stocks are weighted in
the portfolio as well as the distinctly dif-
ferent companies found in one-third of
Odyssey Aggressive Growth account for
the differences in performance.
Odyssey Aggressive Growth was
closed to new investors in January,
with assets of about $5.5 billion.
I’m guessing that the PRIMECAP
Management team didn’t want to let it
grow anywhere near the size of Capital
Opportunity before its 2004 closure.
At $5.5 billion, the fund is about half
the size Capital Opportunity was in
today’s dollars.
I don’t have to tell you that you should
hold onto any and all shares of any of
the PRIMECAP funds you own. With
Odyssey Aggressive Growth closed, you
can still get exposure to the PRIMECAP
team’s excellent stock-picking in its other
two Odyssey funds, but of course, the
smaller-cap and distinct exposures avail-
able in the aggressive fund are now solely
the province of existing shareholders, of
which I’m happy to say I am one.
n
>
A Jump in Growth Led to
More Similar Performance
$0
$1,750
$3,500
$5,250
$7,000
$8,750
$10,500
$12,250
$14,000
7/98
7/00
7/02
7/04
7/06
7/08
7/10
7/12
7/14
Millions
CapitalOpportunityAssets
CapitalOpportunityvs.PRIMECAP
OdysseyAgg.Gro.vs.CapitalOpportunity
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
Cap. Opp reopened
Cap. Opp closed
