(PUB) Investing 2016

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16 • Fund Family Shareholder Association
Daniel P. Wiener is America’s leading expert on
the Vanguard family of funds. He is founder of
the Fund Family Shareholder Association and
chairman and chief executive officer of Adviser
Investments, LLC, a Newton, Massachusetts,
investment advisory firm (800-492-6868). As
editor of The Independent Adviser for Vanguard Investors, he is
a five-time recipient of the Newsletter Publishers Foundation’s
Editorial Excellence Award. He also edits the annual
Independent Guide to the Vanguard Funds. Mr. Wiener is often
quoted in the nation’s leading financial publications.
Jeffrey D. DeMaso, Editor/Director of
Research, works directly with Dan Wiener
researching and writing the multiple-award
winning Independent Adviser for Vanguard
Investors newsletter. He also leads the analyst
team for Adviser Investments, LLC. Jeff gradu-
ated magna cum laude from Tufts University with a B.A. in
economics, holds the Chartered Financial Analyst designation
and is a member of the CFA Institute and the Boston Security
Analysts Society.
DO-IT-NOW ACTION RECOMMENDATIONS
4 Does S&P 500 ETF earn more after taxes than 500 Index? How about other ETFs? The
proof’s in the numbers, so don’t count traditional funds out if you’re going passive.
(See page 6)
4 Build diversification into your portfolio, but don’t do it with multimanager funds like
Morgan Growth or Explorer, which take things too far. (See pages 4 & 12)
4 Will the Fed raise rates in June? A better question to ask yourself is if it even matters.
(See page 15)
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When I started this newsletter in 1991, I had
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fund data by hand. But now, thanks to advances
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But unlike either, it gives you direct access to a
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IT’S MY MANTRA: Buy the manager,
not the fund. And it works.
But you wouldn’t know that reading
the latest semiannual report on Capital
Opportunity, the rocket-ship fund run
by the PRIMECAP management team in
Pasadena. In his Chairman’s Letter, Bill
McNabb notes the fund’s “nearly 12%”
return since its 1995 inception compared
to the stock market’s 8% return and the
Russell MidCap Growth index’s “close
to” 9% return over the same period.
The issue is that the fund did horri-
bly in its first years. And PRIMECAP
wasn’t managing it then. They only
took over once the former manager
was found to have “embellished” his
record and horribly misfired on the
fund itself.
Why do I mention this? Because
it makes a difference. While Capital
Opportunity returned an annualized
11.7% from inception through the end
of March 2016 (the period McNabb
writes about), under PRIMECAP’s
watch, shareholders earned almost a full
percentage point more: 12.6%. Does that
matter? Yes, by about 18%.
Consider that a $3,000 investment
in the fund at inception would have
turned into $27,525 if you’d earned
that 11.7% return for the full period
through March. But PRIMECAP’s
12.6% would have yielded an account
17.9% larger, worth $32,440.
Vanguard likes to all but ignore the
fact that the choice of manager makes
a difference. But it does, and on Capital
Opportunity the difference is writ large. n
PERFORMANCE
Buy the Manager
1%Makes a Difference
Over 20 Years
5 10 15 20 Years
Compounding at 11.7%
Compounding at 12.6%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000