(PUB) Investing 2015

it has suffered under the weight of crashing oil prices and is off 20.3% over the past year, it finally has a new Vanguard board member as a shareholder. The last board member to own shares was Peter Volanakis, who bought during 2010 and sold in 2012. Former Vanguard Chairman Jack Brennan traded into the fund at one time before retiring, and now JoAnn Heisen, a board member since 1998, has reported having between $1 and $10,000 invested in the fund as of Jan. 31, according to a recent regulatory filing. No, that’s not a typo. She also opened an account in REIT Index over the past year, with the same range of ownership reported. Just FYI, Karl Bandtel, who runs Wellington Management’s portion of the fund has reported holding more than $1 million in shares for years. None of the Vanguard managers running their small piece of the fund has invested a nickel. As you surely know, I believe that managers who eat their own cook- ing know best, and that directors who don’t aren’t living up to their fiduciary responsibilities. Last but not least, Diversified Equity , that agglomeration of active funds and managers, may have set a record in May with the addition of its 51st manager. Ben Silver joins the team at Pzena running a piece of Windsor . From inception through the end of May, just 10 days short of its 10th birthday, the fund has returned 119.4%, lagging the 124.0% return from Total Stock Market . As I asked when the fund was first introduced, what’s the point? By the way, none of Vanguard’s directors own a single share of this one, either. n

of advice. From a performance and a tax standpoint, clients may do better investing in one of Vanguard’s funds- of-funds, where cash flows provide automatic rebalancing without having to rejigger the portfolio. While Vanguard can’t seem to get their municipal bond index fund off the runway, it did launch  Alternative Strategies at the end ofMay.Alternative Strategies has several components— a long-short stock strategy, an event- driven strategy, and a strategy to cap- ture mispricing in the bond markets. Oh yeah, and they’ve got commodity contracts and currencies in there, too. Manager Michael Roach, of Vanguard’s quant team, is expected to use leverage to amplify his investments. But before you get all hot about Vanguard’s entry into an area it has often critiqued as inappropriate for most indi- vidual investors, recognize that (a) the fund has a $250,000 minimum, which means it will be out of range for all but the 1%, and (b) it’s being launched primarily for use by Managed Payout , which has been investing in com- modities through the PowerShares DB Commodity Index Tracking Fund (tick- er: DBC) and long-short strategies through Market Neutral . I’ll be curious to see what informa- tion and disclosure Vanguard provides on the fund; it’s a chance to peek into an area not typically known for trans- parency. It is far too soon to generate an opinion (and rating) on the new fund. That $250,000 minimum may be a blessing for most investors. One Erg Chalk one up (a small one) for Energy . An excellent fund, though

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It actually could top out much lower if continued slow growth overseas and greater dollar strength saps growth here in the U.S. Whichever way it goes, even a 1% fed funds rate means interest rates will remain exceptionally low— far from anything resembling “tight” interest-rate policy. MarketTiming? So much for the old market chestnut, “Sell in May and stay away.” May has seen U.S. stocks’ year-to-date return just about double since the end of April. Through April, 500 Index was up 1.9% on the year; through May’s close it is up 3.2%. I know there are five more months to go, but this is at least a tripwire for Sell in May adherents and just one example of why it can be so hard to follow the strategy in real life. See page 5 for a full breakdown of the Sell in May strategy. With its formal introduction in May, Vanguard broadened access to its Personal Advisor Services (PAS), a robo-adviser with a quasi-personal touch, to those with just $50,000 to invest. Before signing on the dotted line, though, know that you are getting what your 0.30% fee pays for: Advice that is controlled from the top down; plain-vanilla, index-based portfolios akin to Vanguard’s funds-of-funds; and a rebalancing feature that doesn’t reduce risk that much, does reduce returns and could create a tax liability. Vanguard will only recommend Vanguard, but you can forget about being advised to invest with the firm’s best active-fund managers. In fact, PAS is a more expen- sive Target Retirement or STAR LifeStrategy portfolio with a side order

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The Independent Adviser for Vanguard Investors • June 2015 • 3

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