The Independent Adviser for Vanguard Investors
•
May 2014
•
3
FOR CUSTOMER SERVICE, PLEASE CALL
800-211-7641
The way to beat high-frequency
trading isn’t to try to play the game
and get faster, but to slow down: Trade
less, ignore the noise and focus on the
long term. Let the traders at Vanguard,
PRIMECAP, Wellington and the other
shops that manage our money handle
the trading platforms.
All of these signals tell me that
although we are more than five years
from the 2009 market bottom, with
stocks having rallied some 200% and
the Dow at a high, investors are not
overly bullish. Typically, as the bull
tires, investors concerned about missing
the next leg up see every market dip as a
buying opportunity. With all the worries
about “corrections” and “rigged” mar-
kets, I don’t believe investor sentiment
is there yet.
That said, it has been more than
two and a quarter years since the last
time stocks were 10% below their most
recent high, and I can promise you there
will be another correction—just don’t
ask me when. I, for one, would wel-
come a correction of 10%, as it would
scare some people out of the market
who shouldn’t be there in the first place,
and might present some very nice buy-
ing opportunities for our managers—
because, as you know, when the markets
tumble, the babies get thrown out with
the bathwater. Valuations may currently
be fairly full, but a stock stumble cou-
pled with growing earnings means those
valuations could come down to fairer
levels without a major upheaval.
Rotation
Speaking of which, on the surface,
stocks have been fairly calm this year,
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FROM PAGE 1
>
with
Total Stock Marke
t and
Total
International
Stock both gaining
2.1%. But there has been plenty of
churning beneath the surface, as the
areas of the market that lagged last year
have led the way so far in 2014. Who
would have thought that with the Fed
beginning to taper its asset purchases,
Extended Duration Treasury ETF
would be up 15.5% to start the year? Or
that interest-rate-sensitive stock funds
like
Utilities ETF
and
REIT ETF
would also be leading the way, with
each gaining 13.7%? I didn’t see that
coming. I’m also not expecting that to
continue in the long run, but it just goes
to show you how hard it is to predict
the rotational swings in the market over
short time periods.
Speaking of keeping an eye on the
horizon while taking the near term in
stride, April was, admittedly, a disap-
pointing month, as our
Model Portfolios
posted market-lagging declines ranging
from -0.1% to -1.4% compared to Total
Stock Market’s
0.1% gain. Some of our
most profitable long-term holdings con-
tributed to the underperformance.
Health
Care
declined 1.9% in April as the red-
hot biotechnology sector cooled off. An
overweight to the health care and tech
sectors also weighed on
PRIMECAP
Core
and
Capital Opportunity
, off
1.5% and 3.2% respectively.
Selected
Value
lost 0.6% as stocks of mid-sized
companies declined more than those of
larger companies.
Note, however, that our buffering
position in
Short-Term Investment-
Grade
did its job of lessening the blow
of falling stock prices, finishing the
month with a gain of 0.3%.
High-Yield
Corporate
continued to do well, up
0.6%.
Easy PAS
Toward the end of April, Vanguard
rolled out a new service to investors:
Vanguard Personal Advisor Service
(PAS). If you’ve got at least $100,000,
Vanguard will provide you with invest-
ment advice and financial planning for
just 0.30% a year. The program began
as a pilot in 2013, and with $755 mil-
lion in client assets at the end of the
year, it’s now ready for primetime.
PAS has drawn comparisons with
a new breed of “robo-advisers” built
around web-based tools designed to
automate your investments. You go
online, fill out a questionnaire and
based on your answers, algorithms spit
out a portfolio—typically index-based
and auto-rebalanced. In some cases, tax
losses are harvested automatically. Fees
are typically in the 0.15% to 0.25%
range.
While I haven’t used any of these
services, it’s axiomatic that with a
robo-adviser you get what you pay
for—very little.
Vanguard’s new service has the
potential to be more than that, as
you’ll have an actual person you can
talk to, though whether they’ll simply
feed you predigested pabulum versus
solid, individualized advice remains
to be seen.
Does that mean Vanguard’s PAS is
for you? If you are comfortable with
an index-oriented portfolio and want
a touch of hand-holding, you could do
far worse. That said, you know that I
believe that with a little work we can
build a portfolio of the best active
managers in Vanguard’s stable that will
run circles around the index over the
long haul. The
Model Portfolios
are the
proof in that pudding.
n
