Despite all the ghoulish predictions for October, the month was neither trick nor treat. Investors on a sugar high battled with those that hadn't yet drunk the recovery Kool-Aid, and in the end they came to a draw. While Vanguard's funds may not be socking you with large capital gains in December, that doesn't mean there aren't still opportunities to whittle down your tax bill for 2009 using losses you may have on your books from last year, or earlier this year. Also, in this issue, I take a look at PRIMECAP's Odyssey fund family and how they compare to Vanguard's PRIMECAP funds. And you'll want to read this month's interview with Jim Barrow and Mark Giambrone—as I've said repeatedly, and they agree, it's the top line we need to look at for a sustainable recovery. Speaking of which, we're just beginning the period when tech stocks traditionally post their best numbers. The question is, will this year's Tech Winter be a warm one?
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Despite long-standing historical precedent, and fears flamed by a hysterical press that September would prove to be the end of or at least the first major roadblock to market recovery since the March 9 low, the month ended with gains across all indices. But we're not in the clear yet. There are some signs we should look for ahead.
Looking at Vanguard's funds, no doubt you've noticed that Capital Value's been on fire this year. What is driving this momentum? Read my analysis in this month's issue to find out whether or not we should be joining the party. Finally, do you know what makes a growth fund a growth fund? I consider a growth fund one which focuses on capital appreciation with little or no regard for generating yield. But what distinguishes one growth fund from the next is the individual manager running the fund, the fund's objective, and how the manager is meeting the objective. In this issue, I take a look at Vanguard's growing product line of good, bad and ugly growth funds.
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Yes, it appears the worst recession you and I have ever experienced is probably on its last legs. Act I was truly a disaster of epic proportions. But that doesn't mean we're in the all-clear. While the housing market appears to have hit bottom, profits have begun to rebound, inflation remains virtually nonexistent, big banks are improving their balance sheets and investor buying power remains formidable, but a litany of issues remain to keep optimism in check. But I believe we should continue to focus on what we do know versus what is only conjecture. What you and I know is that by building portfolios of funds run by solid investment managers, we'll be able to handle whatever surprises are thrown at us in Act II. I encourage you to read my interview with Health Care's Ed Owens to get a sense of where this sector of the market is headed in the coming months and years. Also in this issue: In August, Vanguard closed one of the best-managed funds to new investors, but there is a private fund run by these same managers that is a tremendous option for you. And I give you my analysis of Vanguard's enormous new foray into bond indexing.
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Uncertainty is the only certainty on Wall Street these days. Those who see inflation around the corner are clashing with those who fear deflation. Bond markets are rising and falling on interest-rate expectations, with the 10-year Treasury bouncing swiftly from near 3% to near 4% and back. Housing stats look better, but consumer confidence looks worse. And while the preliminary estimates for second-quarter GDP showed a mere 1.0% decline, revised first-quarter numbers looked worse. Optimist or pessimist, I'm fairly certain we've found a bottom in all things but employment. We've had a great few months since the market's bottom in March, and I expect more to come. But before you put on your party hat, you need to be prepared for anywhere from a 10% to 15% decline at any time. Reading between the lines, I'd say Vanguard is well on its the way to introducing an "absolute return" fund into the mix. Read this month's issue to find out why I believe this is going to happen. Also in this issue, I've got answers to some of the questions you've sent me and more on the latest semiannual reports.
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You could say that June 2009 will be remembered for being bookended by the fall of some of the largest icons in the business and entertainment worlds. As for us, right now you and I, and the markets, are in something of a waiting mode. We've had a big run from the market's lows in early March. Both the Dow and the S&P 500 are up since their March lows, and expectations are that the economy is starting to heal and corporate profits will follow. Read this month's issue to find out where some of Vanguard's outside managers think we're headed and how this is a good time to buy. I'm sticking with the tried-and-true and staying away from the multi-multi-managed funds. In the closed-fund arena, if you're worried about being locked out of the Treasury Money Market funds, don't. You don't need multiple choices to feel safe. And check out my interview with Matt Dobbs, lead manager on International Explorer and co-manager on International Growth, to find out what he thinks about foreign small-caps in this economy.
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Sell. This fund of funds tracks the Morgan Stanley EAFE index by investing in European Index (currently about 70% of assets) and Pacific Index (the remaining 30%). It's similar to Tax-Managed International, which tracks the same index, though that fund buys stocks directly and comes with a higher minimum and more onerous back-end loads. Performance for the two has been virtually identical. Yet both ignore the emerging markets component that one finds in Total International or World ex-U.S. Index. And there's the rub. If you buy into the indexers' credo that one should index "all" markets rather than a slice of the pie, then this fund is a non-starter.
| Models | October | Year to Date |
| Growth | -2.4% | 23.0% |
| Conservative Growth | -2.1% | 19.1% |
| Income | -0.4% | 16.5% |
| Growth Index | -2.7% | 22.5% |
| The average Vanguard investor |
-1.3% | 13.8% |
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