(PUB) Investing 2016

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The Independent Adviser for Vanguard Investors • January 2016 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
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not only did Vanguard assure him that
they’d take care of his distributions, but
when it wasn’t done, they sent him the
forms they needed, then told him he
wouldn’t make the end-of-year cutoff
and would owe IRS penalties. Happy
NewYear?
Vanguard is proposing to launch
an actively run bond fund called Core
Bond during the first quarter of 2016.
The fund will have a trio of Vanguard
veterans at the helm, building the port-
folio with both investment-grade and
non-investment-grade bonds. Junk
bonds will be layered in at up to 5%
of assets, while what Vanguard calls
“medium quality” bonds will take up as
much as 30% of assets. Up to 10% of
the fund can be invested in non-dollar-
denominated bonds.
I think this new fund has the poten-
tial to outshine Total Bond Market
Index over time. But I wouldn’t rush
into it, as I think it will take some
assets to build the diversified portfo-
lio Vanguard needs to make the fund
shine.
Why do I think this fund will do
well? First, three accomplished man-
agers will run it. Second, Vanguard
keeps very tight reins on its active bond
funds, prescribing limits on the amount
of duration or risk the managers can
take vis-à-vis their benchmarks, as
well as how far outside the benchmark
the managers can go when search-
ing for bonds. So add all that up with
expense ratios that are just 5 to 8 basis
points higher than Total Bond Market’s
comparable-share-class expenses, and
you’ve got a pretty low hurdle for the
managers to exceed.
Vanguard also has filed to offer an
active emerging markets bond fund,
but there’s a catch. Emerging Markets
Bond, to be run by Daniel Shaykevich,
a former member of BlackRock’s EM
debt team who’s been at Vanguard for
a few years, will be more diversified
than Emerging Markets Government
Bond Index and is supposedly going to
offer up Investor and Admiral shares.
However, Vanguard says the
fund will not be “available
for immediate public invest-
ment.”
That could mean many
things. It’s worth noting that
Vanguard Chairman Bill
McNabb recently wrote that
investing in emerging markets
is “only suitable for those will-
ing to accept a higher level of volatility
than one might expect from developed
markets.” Hardly an earth-shattering
insight, but it does reflect Vanguard’s
thinking on the subject.
One thought I have is they’ll seed
the fund by offering it only to investors
who are part of their advisory service
program. Once it’s got sufficient assets,
then they’ll open it up to the public.
We’ll just have to wait to see what’s up
with this new active emerging markets
bond offering.
Some of you asked about the Capital
Value trade I made in September. Over
the past three months, the fund is up
5.7% versus Total Stock Market Index’s
6.2% gain. Remember that this is a
long-term strategy and is based on buy-
ing when Capital Value is not perform-
ing as well as the market. Since you
can’t catch the bottom, you have to take
a long-term view here. I’m sticking
with the strategy.
Also, the 2016 Hot Hands fund is
International Explorer. I’ll have the
details on the Hot Hands strategy next
month, but the strategy aims to identify
hot funds—and with an 8.6% gain in
2015, International Explorer is a “hot”
fund in a “cold” market space (foreign
stocks).
Finally, let me put a plug in for what
may be the best financial book of the
year, The Devil’s Financial
Dictionary. Written by my
friend Jason Zweig, this funny
and acerbic take on Wall
Street jargon and hypocrisies
belongs on every investor’s
and would-be investor’s desk.
If FedEx or UPS botched
your holiday gift-giving and
you’re looking for something
better than that faux-leather bow tie
you’ve been trying to return, buy this
instead. You won’t be sorry. n
MEANDERING FROM PAGE 1 >
2015 Scoreboard
End 2015 Change 2015
Dow Jones 17425.03 -2.2%
S&P 500 2043.94 -0.7%
NASDAQ 5007.41 5.7%
Russell 2000 1135.89 -5.7%
Stoxx 600 365.81 6.8%
London 6242.32 -4.9%
Frankfurt 10743.01 9.6%
Tokyo 19033.71 9.1%
Shanghai 3539.18 9.4%
Hong Kong 21914.4 -7.2%
Sao Paulo 43349.96 -13.3%
Gold (oz.) $1,060.50 -10.4%
Oil (bbl) $37.10 -30.4%
Nat. Gas (MMBtu) $2.35 -19.8%
3-mo. T-bill 0.17% up 13 bp
10-yr. T-bond 2.27% up 10 bp
30-yr. T-bond 3.02% up 27 bp
Fed funds 0.50% up 25 bp
Euro $1.086 -10.2%
Yen $0.008 -0.3%
Renminbi $0.154 -4.4%