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Highlights of the Current Issue
of The No-Load Fund Investor

From The No-Load Fund Investor, 11/15...

Upward Bias

Stocks soared virtually across the board in October, making up for most of the damage suffered in the third quarter. Large-cap stocks led the way, as the S&P 500 gained a particularly robust 8.3%,while indexes of mid- and small-cap stocks produced gains on the order of 5% to 6%. The MSCI EAFE index of foreign developed country stocks gained 7.7%.

For the year, the technology & healthcare heavy NASDAQ composite is leading the charge, with a gain of 6.7%, while the S&P is up about 2.7%, with dividends. The small-cap Russell 2000 index is still down, however, with a loss of slightly less than 3%. Though the value and growth styles of investing performed about the same in October, growth is still doing better for the year. On average, the growth funds in our database are up 2.7%, while the value funds are down 1.7%. On average, developed foreign markets are about unchanged.

Investment-grade bonds were quiet in October and are up a percentage point or two for the year. After a strong month, the high-yield corporate sector is almost back to break even.

In recent weeks, some of the areas of the global equity markets that had been producing huge losses over the past year or more have produced outsized gains. For example, various segments of the energy and materials industries, along with some emerging markets in Asia, were up by double digits in October. Unless global economic growth picks up and stays up for a while, we expect more growth oriented, less cyclical types of stocks to regain market leadership. So, thatís where we would put new money, should you want to increase your equity exposure.

Index Beater

Many fund investors know that most actively managed funds fail to beat the S&P 500 over time, due first to higher expenses. This is especially true among portfolios of large stocks, where it is difficult for even the hardest-working portfolio managers to get the research edge necessary to overcome the drag of higher expenses.

Perversely, one additional reason most managers fail to beat the market is that they set their expectations too high: not only do they want to beat the market, but they are so overconfident in their expertise that they attempt to do so through dramatic means. So, they make significant bets on such factors as market capitalization, sector concentration and even investment style (e.g., growth versus value).

Vanguard Growth & Income (VQNPX) takes a different approach. Instead of taking significant risks against the makeup of the S&P 500 in an effort to dramatically outpace it, the managers are happy if the fund can beat the benchmark by 50 basis points (0.50 percentage points) or so per year after all expenses, through numerous small bets produced by quantitative methods (basically, computational systems as opposed to humans picking the stocks and arranging them into a portfolio).

The fund was made over in the fourth quarter of 2011, when Vanguard took it from a single manager (a business unit of Mellon Capital) to a multi-management team format. Since then, it has beaten the S&P 500 each year.

You can read more of our analysis of Vanguard Growth & Income in the November issue of The No-Load Fund Investor.

Model Portfolios

Sample Model Portfolio from the Current Issue
of The No-Load Fund Investor

Wealth Builder Portfolio




% Weighting

Price Health Sciences * sector 1.04 5%
Price Divsfd Small Cap Gr agg gr 1.05 10%
RiverPark Large Growth growth 1.00 5%
Vangd Total Stock Market Idx growth 1.00 15%
Amer Century MidCap Val growth 0.83 10%
Artisan Global Sm CP global 1.23 5%
Dodge & Cox Global Stock global 1.06 5%
Artisan Global Opps global 0.94 10%
Causeway Int'l Value int'l 0.86 5%
Vangd U.S. Value gr-inc 0.97 10%
Vangd Equity Income gr-inc 0.92 10%
Fidelity New Markets Inc. bond 0.32 5%
Vanguard Prime Money Market money mkt 0.00 5%
* = Closed to new investors
N = New this month
H = Hold
W = Change in portfolio weighting
D = Deleted this month
Average portfolio beta: 0.90
Average expense ratio: 0.78%
Since January 1, 1988, $10,000 has grown to $155,188

Best Buy Portfolios


Wealth Builder



Income & Preservation

Cash 5% 10% 15% 20%
Bonds 5% 15% 30% 60%
U.S. Equities 75% 65% 50% 15%
Int'l Equities 15% 10% 5% 5%
Portfolio returns since 1/1/88 through most recent month ($10,000 original investment) $155,188 $140,407 $105,422 $15,224
since 2/1/09
Average portfolio Beta 0.90 0.74 0.53 0.24
Average expense ratio 0.78 0.73 0.61 0.61

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