The Independent Adviser for Vanguard Investors
•
May 2014
•
5
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“DEAD MONEY.”
In March, I told you that despite
the 10.2% gain for
Precious Metals
& Mining
during February’s rebound,
investing in the fund (or in gold, for that
matter) was a mistake.
So I was surprised to see Vanguard
dancing around the fund’s performance
in a recent interview with its former
manager, Graham French. Writing that
the interview would give “tips on how
to avoid fool’s gold,” Vanguard noted
that under French’s tenure, from the
end of 1996 through 2013, the fund had
outperformed 75% of its peers.
That’s nothing to sneeze at, and
Graham French sounds like a class act.
But what Vanguard didn’t men-
tion was the fact that even though
Precious Metals & Mining outper-
formed three-quarters of its peers, its
overall performance was horrible, and
didn’t even match the returns from
Total Bond Market Index
, a well-
known and much more stable portfolio
“diversifier.”
And, as you’ll see in the chart to the
left, Precious Metals & Mining couldn’t
come close to performing alongside some
of my favorite active funds, nor could it
keep up with my
Model Portfolios
over
the 17-year period. (The chart shows
total returns for the full period.)
In fact, had you and I owned a piece
of the fund in our portfolios over that
time, our performance would have been
worse. Timing our entry and exit would
have been impossible given the fund’s
volatility, so those who think we might
have caught an upside year like 2009,
when it gained 76.5%, ignore the equal
possibility of having money there in
2008, when it lost 56.0%.
Vanguard got it right when they said
they would offer tips on avoiding fool’s
gold, but they didn’t give the best tip of
all, which is to avoid this fund.
n
Prec. Metals&Mining Lagged
0% 300% 600% 900%
Health Care
Capital Opportunity
Growth Model
PRIMECAP
Selected Value
Cons. Growth Model
REIT Index
Growth Index Model
Windsor II
Total Stock Market Idx.
500 Index
Dividend Growth
Income Model
Emerging Markets Index
International Growth
High-Yield Corporate
Total Bond Market Index
Total International Index
Prec. Metals & Mining
Prime Money Market
METALS
Fool’s Gold
the William Blair fund performed over
the 10-year stretch that coincides with
the firm’s tenure on U.S. Growth. The
results aren’t pretty, and it calls into
question just how William Blair—
which, by the way, now runs just 12%
of the assets in the newly enlarged U.S.
Growth—can add lots of value.
Take a look at the first chart to the
right. In it, I’ve plotted the performance
over the past 10 years for U.S. Growth,
William Blair Large Cap Growth and
the Russell 1000 Growth index, which
is the benchmark for both funds. From
March 2004 through March 2014,
U.S. Growth’s 7.0% annualized return
lagged the Russell index’s 7.9% return,
and the William Blair fund under-
performed both, compounding at just
6.6% per annum.
Now, it’s possible that the port-
folio William Blair builds for U.S.
Growth looks more like their William
Blair Growth fund, in which case the
10-year return is a much stronger 8.7%.
However, that fund benchmarks against
a much broader Russell 3000 Growth
index, so it’s really not the right com-
parison. And neither Golan or Ricci are
managers on the Growth fund, so I’ll
stick with my comparison to the former
fund.
So what’s McNabb talking about?
I’m not sure. I’m also not sure that
U.S. Growth has necessarily emerged
from its “challenging stretch.” Since
firing AllianceBernstein and hir-
ing Wellington Management and
Delaware Management at the end of
2010’s third quarter, relative perfor-
mance has improved a bit. From that
WilliamBlair Underperformed
3/04
3/05
3/06
3/07
3/08
3/09
3/10
3/11
3/12
3/13
3/14
50
75
100
125
150
175
200
225
W.B. Large Cap Growth
U.S. Growth
Russell 1000 Growth
point through the end of March 2014,
U.S. Growth gained 81.3% compared
to 78.6% for the Russell 1000 Growth
index and 77.4% for
Growth Index
.
But that’s a pretty short period to mea-
sure, and it certainly doesn’t account
for the fact that U.S. Growth has been
reconfigured again through the merg-
er and addition of
Growth Equity
’s
managers.
I’m not too sanguine about the
new U.S. Growth. You shouldn’t be,
either.
n
U.S. Growth Righted?
9/10
3/11
9/11
3/12
9/12
3/13
9/13
3/14
U.S. Growth vs. Growth Idx.
U.S. Growth vs. Russell 1000 Growth Idx.
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
Note: Chart covers period from 12/31/1996 through 12/31/2013.
