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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 26, NO. 5
Q1 Blues, Ver. 3.0
AFTER A ROUGH START TO 2016,
a relative calm seems to have settled over Wall
Street. Volatility is down; stocks are up; and high yield is back in favor. Since quarter-
end, the VIX, a gauge of investor anxiety, has fallen, and its year-to-date average is
below its long-term average. If that trend sticks, this will be the fifth year in a row of
below-average volatility. The Dow and S&P 500 indexes, despite tumbles near April’s
end, are within 3.1% and 2.9% of their all-time highs, respectively. Add in dividends,
and the Dow hit five all-time highs this month.
500 Index
hit an all-time high on April
20 but fell 1.8% from there. And
High-Yield Corporate
was up 2.6% this month, put-
ting it up 5.0% on the year. Compare that to
Total Bond Market Index
’s 0.4% April
gain and 3.5% rise this year.
Though expected, the report that first-quarter economic growth was extremely light
for the third year in a row, at 0.5% growth, raised anxiety. Economists complain there are
problems with the way the BEA collects data in the first quarter of each year, but to me,
the issue is that consumers aren’t spending—they’re saving. Household balance sheets
are in the best shape they’ve been in decades. U.S. consumers have plenty of steam to
keep the economic train chugging ahead, but economic growth won’t reach a higher level
until consumers start spending more.
Look at the graph on page 3, which shows GDP growth has been a bit steadier than
quarterly numbers would suggest. Over the past 16 years, year-over-year growth has
averaged 1.9%. That includes 17 first quarters. (I counted from the beginning of 2000
through this past quarter.) Would I like to see stronger economic growth? Absolutely. Do
The Independent Adviser for Vanguard Investors
and FFSA are completely independent of The Vanguard Group, Inc.
MID-CAP VALUE
Selling Selected Value
I’VE ALWAYS BEEN
a big fan of mid-caps—they tend to be solid companies with real
businesses, real balance sheets and real history. Unlike small companies, the mid-cap
arena’s denizens are a bit more grown up. Yet, they tend to be overlooked by Wall
Street, where the bulk of the attention is focused on S&P 500 companies, the behe-
moths of the market.
I’ve also always believed in smart diversification, so rather than own a mid-cap index
fund, I’ve preferred to allocate money to managers with different views of what growth
and value are. That’s why you and I have owned
Selected Value
for years.
But after almost 17 years, I think it’s time to bid Selected Value adieu. As I recommended
in the April 28
Hotline
, we’re trading out of the fund in both the
Growth
and
Conservative
DOW JONES INDUSTRIALS
April Close:
17773.64
STANDARD & POOR’S 500
April Close:
2065.30
4300
4550
4800
5050
5300
AMF JDN OSA J JM
NASDAQ COMPOSITE
April Close:
4775.36
0.00%
0.08%
0.16%
0.24%
0.32%
AMF JDN OSA J JM
3-MO.TREASURY BILLYIELD
April Close:
0.19%
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
AMF JDN OSA J JM
10-YR.TREASURY NOTE YIELD
April Close:
1.82%
15900
16400
16900
17400
17900
18400
AMF JDN OSA J JM
1850
1900
1950
2000
2050
2100
2150
AMF JDN OSA J JM
AVERAGEVANGUARD INVESTOR*
April:
0.9%
YTD:
1.8%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
AMF JDNOSAJ JMA
*See the footnotes on page 2.
Selling Selected Value....................................................... 1
Model Portfolios................................................................ 2
After-Tax Tales.................................................................... 6
Mailbox: Equity Allocations............................................... 7
Performance Review.................................................... 8-11
10 Things Vanguard Won’t Tell You (Part 1)....................... 14
Do-It-Now Action Recommendations............................. 16
MAY 2016
SEE
BLUES
PAGE 3
>
S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E
>
SEE
VALUE
PAGE 3