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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 26, NO. 11
Single-Digit Math
OCTOBER LIVED UP TO ITS REPUTATION
as the worst month to invest in stocks. (That
reputation is undeserved, by the way—September has been the worst month on average.)
In October, the Dow index fell 0.9%, while the S&P 500 index dropped 1.9%. But it
was a divided market, with the tech-heavy NASDAQ 100 hitting a high late in the month
before succumbing to selling pressure. Small stocks were particularly hard hit, with the
Russell 2000 falling 4.8%.
Most funds fell, including bond funds, which reacted to rising interest rates. But the
biggest headaches were reserved for health care stocks. Some investors fear that bio-
technology and pharmaceutical companies will be unable to continue to raise prices
at the rate they’ve done in the past, hurting earnings growth.
Health Care
and
Health
Care ETF
fell 7.7% and 7.2%, respectively. I can’t say it enough—these are buying
opportunities, not reasons to sell. The active fund’s managers are actively responding by
selectively purchasing additional shares of the best bargains this market dislocation has
created. While there are no guarantees when it comes to investing, I believe any dollar
you add to the pressured sector now, particularly to Health Care, will yield robust returns
over the next three to five years.
Speaking of pressure, you may notice a change in the
Performance Review
on pages
8 through 11 this month. No, we didn’t change anything, but the three-year return num-
bers for many equity funds did change—falling into the single digits. With a drop in its
three-year return from 11.0% last month to 8.7% this month,
500 Index
has returned
to a single-digit percentage for the first time since September 2011. Other funds seeing
The Independent Adviser for Vanguard Investors
and FFSA are completely independent of The Vanguard Group, Inc.
FUNDS FOCUS
> MID-CAP GROWTH FUNDS
Don’t Overlook the Middle Child
COMMON WISDOM SAYS
that the stocks of smaller companies outperform those of
larger ones and that achieving those higher returns requires you to take on more risk. But
stocks of mid-sized companies turn both those chestnuts upside down.
Longtime FFSA members know that Dan and I consider the stocks of mid-sized compa-
nies to be in the sweet spot for growth. Newer members heard this story in the September
newsletter as well, but when battling accepted narratives, a little repetition is required.
We’ll start at the top: Do small-cap stocks outperform? Let’s go to the videotape, or
the table on page 5, where I’ve compared return and risk stats for the Russell indexes
over the past 38 years. Over this stretch, small-cap stocks (represented by the Russell
2000 index) have indeed outpaced large-cap stocks (the Russell Top 200 index).
DOW JONES INDUSTRIALS
October Close:
18142.42
STANDARD & POOR’S 500
October Close:
2126.15
4200
4500
4800
5100
5400
O SA J JMAMF JDN
NASDAQ COMPOSITE
October Close:
5189.13
0.15%
0.19%
0.23%
0.27%
0.31%
0.35%
O SA J JMAMF JDN
3-MO.TREASURY BILLYIELD
October Close:
0.30%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
O SA J JMAMF JDN
10-YR.TREASURY NOTE YIELD
October Close:
1.83%
15700
16300
16900
17500
18100
18700
O SA J JMAMF JDN
1820
1900
1980
2060
2140
2220
O SA J JMAMF JDN
AVERAGEVANGUARD INVESTOR*
October:
-1.8%
YTD:
4.8%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
OSAJ JMAMF JDN
*See the footnotes on page 2.
Funds Focus: Mid-Cap Growth Funds............................... 1
Model Portfolios................................................................ 2
Performance Review.................................................... 8-11
Proper Expectations........................................................ 12
Tech Winter: A Cold Wind Blows.................................... 13
Law of Small Numbers................................................... 15
Dan’s Do-It-Now Action Recommendations.................... 16
NOVEMBER 2016
SEE
MATH
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
MIDDLE
PAGE 4