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The No-Load Fund Investor The No-Load Fund Investor

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

From The No-Load Fund Investor, 3/15...

An Exception to Our Rule

February was excellent for equity investors. The S&P 500 gained 5.5%; since it was down 3% in January, it is now up about 2.3% year to date. Broad indexes of small-cap stocks have performed about the same as the S&P 500 so far this year, while mid-caps have done a bit better.

The ‘growth’style of investing has outperformed the ‘value’style so far in 2015. Case in point: after outpacing the value funds in our database by one percentage point in February (6.4% vs. 5.4%), the growth funds we track are beating value with a gain of 4.3%, vs. 1.8%.

Broad indexes of foreign equities also performed well in February, though not quite as well as the U.S. However, because they were up a bit in January, they are beating the U.S. for the year.

On average, the international equity funds we track are up 4.8% year to date.

February saw a bounce in stocks leveraged to oil, including some of the suppliers and non-diversified players in the oil patch. However, technology and pharmaceuticals also shined.

Meanwhile, banks have rebounded lately after some very lackluster performance. On the other hand, utility stocks and real estate investment trusts (REITS) were among the worst performers in February, giving back some of the outsized gains they have produced in the recent past. Long-term, high-quality bonds also retreated slightly.

Best Buys Commentary/Changes. We are making no changes in the asset allocations of our Best Buys models. However, we are replacing one long-time recommendation, which has had a tough go of it since a manager change in 2014. For details, see the March 2015 edition of The No-Load Fund Investor.

Active at Vanguard

Mutual fund investors increasingly identify The Vanguard Group with index funds. However, the firm also has extensive lineups of actively managed funds, including quantitatively managed funds overseen by Vanguard’s own staff, and externally managed stock funds whose managers tend toward traditional, fundamental types of analysis.

Over the past several years, many investors have been drawn to Vanguard “funds of funds” that invest in collections of the company’s own index funds. In particular, the four Vanguard LifeStrategy funds offer static allocations, each designed for different levels of risk, while the Target Retirement funds (12 at last count) attempt to decrease risk over time by reducing equity and increasing fixed income allocations as the years pass toward an expected year of retirement.

Using index funds as the underlying holdings offers investors the lowest costs, plus an almost certainty of nearly matching the blended return of the indexes. However, Vanguard also offers two funds of funds that invest in some of the firm’s externally managed active funds, with managers that seek to beat a benchmark rather than simply match it, while offering management fees (and overall expense ratios) that are much lower than those of virtually all other actively managed competitors.

The older and larger of the two is STAR (VGSTX), which opened for business nearly 30 years ago and now has nearly $19 billion in assets. A hybrid, or balanced, fund of funds, STAR offers a moderate portfolio of approximately 60% equity funds, and 40% fixed income funds. International equity funds account for almost a third of the total equity position.

STAR has performed well over the three-year period ended Feb. 27, 2015. (It has also performed well over periods of longer than three years.) Of course, the primary reason is that most of the underlying funds have been better than average within their respective categories. To access a full analysis of Vanguard’s actively managed funds of funds, see the March 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

Fund

Obj.

Beta

% Weighting

Price Health Sciences sector 1.01 5%
Price Divsfd Small Cap Gr agg gr 1.17 10%
RiverPark Large Growth growth 1.12 5%
Vangd Total Stock Market Idx growth 1.03 15%
Amer Century MidCap Val growth 0.89 10%
Artisan Global Sm CP global 1.23* 5%
Causeway Int'l Value int'l 1.17 5%
Dodge & Cox Global Stock global 1.19 5%
Artisan Global Opps global 1.13 10%
Vangd U.S. Value gr-inc 1.04 10%
Vangd Equity Income gr-inc 0.91 10%
Fidelity New Markets Inc. bond 0.43 5%
Vanguard Prime Money Market money mkt 0.00 5%
* = Estimated
N = New this month
H = Hold
W = Change in portfolio weighting
D = Deleted this month
Average portfolio beta: 0.98
Average expense ratio: 0.77%
Since January 1, 1988, $10,000 has grown to $156,296


Best Buy Portfolios

 

Wealth Builder

Pre-Retirement

Retirement

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) $156,296 $141,109 $105,720 $15,310
since 2/1/09
Average portfolio Beta 0.98 0.82 0.59 0.27
Average expense ratio 0.77 0.73 0.62 0.61

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