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The Independent Adviser for Vanguard Investors • July 2016 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
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and prices are high. Low, low yields
(some negative) overseas are a sign
of continuing economic malaise. Here
in the U.S., they are a sign of per-
sistent worry, compounded by what
I already said was a host of new
unknowns on the global stage. I remain
a big fan of Vanguard’s corporate-
heavy bond funds, like Short-Term
Investment-Grade, up 3.0% this year,
and Intermediate-Term Investment-
Grade, up 6.1%, for their high qual-
ity and low expenses. The comparable
tax-exempt funds are also standouts.
Remember, a fund like Total Bond
Market Index allocates over 40% of
its portfolio to Treasury and Agency
bonds, and at Intermediate-Term
Bond Index that number is over 50%.
When Treasurys begin their inevitable
slide as yields rise and prices fall, this
will be a headwind.
By the way, exactly when that will
happen is up in the air. Vanguard’s
fixed-income team thinks that the Fed
will raise rates one or two times later
this year. I asked if that prediction,
made before the Brexit, had changed,
and Vanguard didn’t respond.
Semiannual Review
It’s been a long, hard six months,
and on the equity side, the managers
that I have put my money on have been
lagging. The PRIMECAP team, in par-
ticular, has suffered from declines in
their health care holdings along with a
host of other losers in, for instance, the
airline industry. Capital Opportunity
is off 4.6% this year, and PRIMECAP
Core is down 0.3%. 500 Index is up
3.8%, and growth-oriented index funds
are showing positive returns as well.
The team at Health Care has fall-
en behind Health Care Index , down
3.9%, while the index fund is off
1.2%. And Don Kilbride’s Dividend
Growth has had an uncharacteristic
period, underperforming Dividend
Appreciation Index, up 5.6% to the
index fund’s 8.1% gain. International
Growth’s teams, likewise, are lag-
ging a bit, off 1.6% compared to Total
International Stock Index ’s flat 0.0%
return. As a consequence, the Model
Portfolios ’ year-to-date returns, rang-
ing from 1.9% to 5.1%, are nothing to
write home about.
What’s winning? Well, Precious
Metals & Mining is up 77.4% for the
year. Should you buy it? You know my
opinion, but let’s hear from Vanguard
founder Jack Bogle. When asked about
gold this past month, his answer was,
and I quote, “No, no, no, no, no.” Yes,
the gold bugs are buzzing, for the
moment. Once the metal turns down,
that annoyance will end.
Needless to say, I’m a competitive
guy, and I don’t like to underperform.
But that’s exactly what happens in
a year when gold is on a tear and
leading innovators in the health and
tech industries are in the dumps. Yet,
I know that our broad portfolio alloca-
tions are strong, as evidenced by the
Growth Index Model Portfolio’s terrific
returns. Yes, the index funds are out-
performing this year, but I also know
that the managers I’ve just mentioned
haven’t suddenly lost their chops. All
are index-beaters and are very com-
petitive individuals who will not let
this underperformance get in the way
of continuing to follow their long-term,
market-beating strategies. Rest assured,
our money is just fine in all of their
capable hands.
Consolidation
I wasn’t suffering alone with the
issues consolidating my brokerage and
fund accounts I mentioned in my June 9
Hotline, which included the loss of run-
ning balances and the confusion of hav-
ing two money markets, not to mention
bounced checks. Vanguard says these
complaints are few and far between,
but what would you expect them to
say? Here’s a tip: Apparently, Kenneth
Agostinelli works in “Resolution
Services,” and he’s supposed to be very
good at fixing problems. He’s at (800)
896-7309 ext. 16527. Maybe he can
help.
And on a last note, I don’t know if
we’re witnessing the first baby steps
toward greater disclosure from a firm
that is all about minimizing it, but
in both the Windsor and Windsor
II semiannual reports, three portfolio
managers out of a total of seven specifi-
cally note that their particular portfo-
lios underperformed their benchmarks.
Now, this doesn’t tell us how much they
underperformed, nor does it tell us how
the other four managers did, but hav-
ing read literally thousands of annual
reports, I can say affirmatively this is
a new move. Vanguard remains very
tight-lipped about how their individual
portfolio managers perform—some-
thing that a firm that is owned by its
shareholders and which makes a lot of
hay over multimanagement ought to be
more forthcoming about. But if this is a
start, rather than a mistake, I’m all for
it. The window has been cracked open
oh so slightly. Let’s see if the winds of
reform continue to blow through. n
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