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The Independent Adviser for Vanguard Investors
•
July 2016
•
5
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was not fulfilling its regulatory obliga-
tions. The fixes usually come after I’ve
flagged the omissions. In calculating
those “minimums,” I assumed that each
director was at the low end of the stated
range for every one of their holdings.
For those with between $50,001 and
$100,000 I assumed $50,001 as a mini-
mum. For holdings “over $100,000”
invested I assumed $100,001.
Because of the varied timing of
Vanguard’s disclosures, a few of the
numbers I’m working with deal with
ownership levels at the end of 2014, not
2015, and probably won’t be updated
until December. I can’t help that; it’s
just the way Vanguard works.
Spreading the Wealth?
So, what do the numbers tell us
about how Vanguard’s directors invest-
ed their Vanguard money in 2015?
First off, it’s probably not a big sur-
prise that the directors have focused
their own money on index funds—not
active funds. Oh, yes, certain board
members own certain active funds, but
there’s little consensus. That means
lots of Vanguard shareholders who own
Vanguard’s active funds do so without
any director actually sitting at the table
with us, eating that active cooking.
Overall, just 64 funds count one or
more board members as sharehold-
ers, leaving some 100 funds with-
out any board representation among
shareholders. The bulk of the direc-
tors’ money is concentrated in just
a few funds. Nine of the 10 board
members reporting for 2015 own
shares in
Total Stock Market
and
Prime Money Market
, and six own
shares in
Total International Stock
Index
and
Emerging Markets Stock
Index
.
Five are invested in
500 Index
,
Intermediate-Term Tax-Exempt
and
SmallCap Index
. I should note
that because these board members are
wealthy, they prefer to invest in tax-
exempt funds. Just two own shares in
Total Bond Market Index
.
The only
actively managed equity funds to find
even four board members as investors
are
Health Care
and
PRIMECAP
Core
. The active, balanced
Wellington
is also owned by four board members.
Notable changes over the past year
include one director’s sale of
REIT
Index
, leaving that fund with just one
director shareholder. Ditto for
Wellesley
Income
and
Emerging Markets Select
Stock
. On the plus side,
Extended
Market Index
picked up two new
director shareholders.
So, how are Vanguard’s directors’
portfolios stacking up? Well, if you
view this from 30,000 feet up, you
might say that a board with invest-
ments in more than 60 funds isn’t mak-
ing too terrible a showing. But consider
that we really don’t know how big a
commitment the directors have made,
since the required disclosures are so
minimal.
I’ll give the directors as a group
credit for owning more active equity
funds than they don’t. But ownership
is scattered about, and the commitment
to the multimanager strategy, which
I’m a critic of, is marginal at best. If
it weren’t for Chairman Bill McNabb,
Vanguard’s multimanaged equity funds
would have a pretty slim roster of direc-
tor shareholders.
>
Directors’ Direct Holdings
Peter F. Volanakis
Minimum invested
$2.6 million
No. of funds owned
29
Fees paid
$1.5 million
F. William McNabb III
Minimum invested
$2.2 million
No. of funds owned
26
Fees paid
N.A.
JoAnn Heffernan Heisen
Minimum invested
$1.6 million
No. of funds owned
19
Fees paid
$2.7 million
Mark Loughridge
Minimum invested
$1.4 million
No. of funds owned
14
Fees paid
$867,000
Amy Gutmann
Minimum invested
$1.4 million
No. of funds owned
16
Fees paid
$1.9 million
F. Joseph Loughrey
Minimum invested
$1.1 million
No. of funds owned
11
Fees paid
$1.4 million
Rajiv L. Gupta
Minimum invested
$1.0 million
No. of funds owned
10
Fees paid
$2.4 million
Emerson U. Fullwood
Minimum invested
$930,000
No. of funds owned
13
Fees paid
$1.7 million
Scott C. Malpass
Minimum invested
$700,000
No. of funds owned
9
Fees paid
$836,000
André F. Perold
Minimum invested
$110,000
No. of funds owned
4
Fees paid
$2.1 million
Consensus Breaks Down Quickly
HELD BY 9 BOARD MEMBERS:
Prime Money Market, Total Stock Market Index
HELD BY 6 BOARD MEMBERS:
Emerging Markets Stock Index, Total International Stock Index
HELD BY 5 BOARD MEMBERS:
500 Index, Intermediate-Term Tax-Exempt, SmallCap Index
HELD BY 4 BOARD MEMBERS:
Health Care, High Dividend Yield Index, PRIMECAP Core,
Wellington
HELD BY 3 BOARD MEMBERS:
Capital Opportunity, Developed Markets Index, Dividend
Appreciation Index, Extended Market Index, High-Yield Tax-Exempt, International Growth,
Limited-Term Tax-Exempt, PRIMECAP, Short-Term Investment-Grade, SmallCap Growth Index
HELD BY 2 BOARD MEMBERS:
Dividend Growth, Explorer, Global Equity, Growth Index, Int.-T
Inv.-Grade, International Explorer, LargeCap Index, MidCap Growth, Selected Value, Short-Term
Tax-Exempt, T-M Capital Appreciation, Total Bond Market, Total International Bond Index, U.S.
Growth, Windsor II, World ex-U.S. Index, World ex-U.S. SmallCap Index
HELD BY 1 BOARD MEMBER:
Capital Value, Convertible Securities, Diversified Equity, Emerging
Markets Select Stock, Energy, Financials Index, High Yield Corp., Int.-T Bond Index, International
Value, Long-Term Tax-Exempt, MidCap Growth Index, MidCap Index, Morgan Growth, PA Long-
Term Tax-Ex., Pacific Index, REIT Index, Short-T Bond Index, SmallCap Value Index, Strategic
Equity, Target 2050, T-M SmallCap, Treasury Money Market, Total World Stock Index, Value
Index, Wellesley Income, Windsor