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•
October 2016
•
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being a bit more “core” than its sib-
lings, it has less of a focus on growth.
This also makes it the least risky of the
PRIMECAP Management-run funds.
Dan and I both own it, but if you can
tolerate a bit more risk, you may be
able to reap higher returns in
Odyssey
Growth
(a fund we also both own).
Social Index
Hold.
Social Index is a large-cap
growth fund with a portfolio of brand-
name stocks, including Johnson &
Johnson, Apple and Microsoft. In its
early years, the fund tracked a Calvert
index, but switched to a FTSE bench-
mark in late 2005.
The idea here is that companies in
FTSE’s index have been screened for
attractive social characteristics, and as
such, will win out over their dirtier, more
socially irresponsible competitors. I’m a
skeptic, and believe that you should first
invest to profit, and then support organi-
zations whose missions match your own
social goals rather than assuming that
because this fund’s $2.3 billion in assets
aren’t invested in “bad” companies, this
will somehowmake a difference. It won’t.
Plus, how do you define a socially
good company? Wells Fargo, a top-10
holding, was just fined $185 million
for fraudulently opening some two mil-
lion accounts for unsuspecting savers.
Where’s the social good there?
In fact, historically, Social Index
has had a much larger allocation to
financial stocks compared to Growth
Index—as it does today, with 23.7%
in financial stocks versus 12.5% for
Growth Index. This difference has led
to periods when there were stark per-
formance divergences between the two
index funds. Notably, during the credit
crisis, that big allocation to financial
stocks hurt Social Index—a lot. Over
the past seven years, performance has
been roughly a wash between the two
growth-oriented index funds.
If you believe that investing in
Social Index will make the world bet-
ter or makes you feel better about your
investments, go ahead and invest here,
but as I said, I’m skeptical.
STAR
LifeStrategy
Growth
Sell.
Just because it’s a fund of index
funds doesn’t mean this is a static port-
folio. For the past three years, this fund
has held just four index funds, but in
2015, Vanguard increased the alloca-
tion to both foreign stocks and bonds.
Today its holdings are divided
among
Total Stock Market
(48% of
assets),
Total International Stock
(32%),
Total Bond Market II
(14%)
and
Total International Bond
(6%).
For those counting, that’s 80% in stock
funds and 20% in bond funds. Foreign
stocks now make up 40% of the allo-
cation to stocks and foreign bonds
account for 30% of the bond sleeve.
Owning index funds can be a sound
strategy, and this fund certainly makes
diversified investing easy, particularly
for those just starting out, but I think
>
SEE
FOCUS
PAGE 12
Active Large-Cap Growth Funds
Morgan Growth
PRIMECAP PRIMECAP Core
U.S. Growth
Social Idx
T-M Cap App
8/31/16
8/31/16
8/31/16
8/31/16
8/31/16
8/31/16
Number of Stocks
312
131
152
159
413
954
P/E
26
20.6
19.3
31.2
21.0
23.0
P/Book
5.0
3.8
3.3
5.0
2.8
2.9
Median Market Cap.
$51.2
$66.9
$51.2
$51.2
$69.8
$60.2
Foreign
4.6%
9.6%
11.0%
1.4%
0.4%
0.1%
Cash
0.9%
3.0%
4.5%
0.5%
0.0%
0.0%
Turnover
41.2%
8.6%
9.9%
38.5%
19.7%
9.8%
Sector Allocation
Consumer Discretionary
20.3%
8.2%
12.8%
19.2%
10.4%
14.3%
Consumer Staples
6.9%
0.4%
0.8%
5.6%
10.9%
8.3%
Energy
1.7%
1.5%
1.1%
0.5%
3.0%
6.8%
Financials
4.4%
7.0%
8.6%
9.2%
23.7%
19.7%
Health Care
16.5%
27.6%
25.0%
17.6%
18.9%
14.0%
Industrials
9.3%
15.5%
17.6%
7.8%
6.9%
10.2%
Information Technology
37.2%
36.9%
30.3%
36.8%
23.4%
17.5%
Materials
1.8%
1.9%
2.7%
1.0%
2.0%
3.6%
Telecom
1.6%
1.0%
1.1%
0.4%
0.2%
—
Utilities
0.3%
0.0%
0.0%
0.1%
0.6%
5.6%
Top-10
23%
42%
32%
30%
24%
17%
1
Alphabet
Biogen
Amgen
Alphabet
Apple
Apple
2
Apple
Amgen Southwest Airlines
Alphabet
Alphabet
3
Eli Lilly
Eli Lilly
Amazon.com
Microsoft
Microsoft
4
Amazon.com
Microsoft
Alphabet
Visa Johnson & Johnson
ExxonMobil
5
Visa
Alphabet
Biogen
MasterCard
Facebook Johnson & Johnson
6
Microsoft
Texas Instruments
Roche
Microsoft
Wells Fargo
Amazon.com
7
Home Depot
Adobe Systems Texas Instruments
Allergan
JPMorgan Chase Berkshire Hathaway
8
Amgen
FedEx
JPMorgan Chase
Celgene Procter & Gamble
9
Pepsi
Roche
CarMax
PayPal
Pfizer
General Electric
10
Bristol-Myers Squibb Southwest Airlines
Microsoft
Biogen
Merck
Procter & Gamble