(PUB) Investing 2015

worst-performing fund in Vanguard’s stable, and followed that up in 2014 as the second worst performer. With July’s tumble, the fund established a new MCL (maximum cumulative loss), down 72.6% from its high reached before the credit crisis in May 2008. All this in the midst of a bull market! True contrarians may be drawn to invest here, but you’ll need a cast-iron stomach to handle the ride. In all hon- esty, how much of your portfolio would you really want to stake on this volatile sector? A 5% position would be large, in my view, wouldn’t add much on the way up—but could certainly induce plenty of stress on the way down. One fund that has begun to rise, phoenix-like, from its ashes is Prime Money Market . Its yield has risen from just 0.01% on May 29 to the recent 0.04% hit on Monday, while the yields on all of Vanguard’s other money funds remain anchored at 0.01%. What’s going on? I don’t have a clue, but I’m guessing expenses are being cut to the bone. Fee waivers, which Vanguard maintains are temporary though they’ve been in place for years now, are going up. Over the past two years, fee waivers on Prime Money Market alone have jumped from $3.3 million to $8.1 mil- lion, a 150% rise, while assets are up just 9.6% over the same period. So, forget “investing” in cash or in gold, but do continue to hold to a well- diversified portfolio of great managers. Our Model Portfolios are handling the market turns just fine, and the Growth Model Portfolio , up 5.1% this year, is ahead of Total Stock Market, Total International Stock and Total Bond Market . That should give you a nice, warm feeling. n

their ham-handed attempts to prop up stocks, you have to wonder whether the command-control system there really works when you begin to give peo- ple some freedoms and they refuse to march in lockstep. No, the Chinese markets are not free, and Vanguard’s insistence that it will continue with its plans to add mainland stocks to Emerging Markets Index by following a newly cast FTSE Emerging Markets All-Cap China A Inclusion index seems at best ill-advised, though I can think of one reason they may want to do it: In buying mainland stocks now, before MSCI—the big kahuna of emerging markets indexes—adds them to its emerging markets index, Vanguard is essentially front-running a tidal wave of cash that will eventually make its way into that market. When and whether that cash pushes prices up dramatically remains to be seen. But as Jeff and I explained last month, the benefits to being first are pretty darned slim. Still, they make for good market- ing. Total International Stock lagged in July with a 0.8% loss. It’s up 4.5% this year, while my favorite all-weather foreign fund, International Growth , has generated a 5.5% gain. Getting back to gold and falling com- modity prices, July was a month that the few die-hard investors remaining in Precious Metals & Mining will want to forget. The fund’s 16.2% decline ranks as the 12th worst month in the fund’s history—though it pales beside the 39.9% fall in October 2008. When times are good, this fund can glitter. But the bad times are really, really bad, and they’ve been terrible now for years. Precious Metals & Mining had a three- year stretch from 2011-2013 as the

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of the maelstrom that would accom- pany a 10% correction, the cool heads at Barrow Hanley, PRIMECAP and Wellington Management would be picking up deals left and right. China Cooling Greece is so yesterday. This past month, the action has been in China, where it appears the economy may be cooling faster than originally thought. Don’t take the government’s word for it, though—they say growth came in at an annualized 7.0% in Q2, which seems impossibly right on the money, hitting the stated 7.0% target perfectly. Me, I’ve got my eyes on the commod- ity markets, where gold, copper and oil, to name an important trio, have been falling on investors’ assumptions about declining demand. (More on gold, or rather Precious Metals & Mining , in a moment.) Whether you call it interaction, inter- vention or interference, Shanghai’s stock market was the poster child for volatility and uncertainty in July. When the gov- ernment allows over 1,000 companies to halt trading in their stocks, manipulates the use of margin (by relaxing and tight- ening lending rules), bans IPOs to reduce supply and tells large investors they can’t sell while things are going down—well, to me, that smacks of interference of the highest order. And it didn’t work. Last Monday, Shanghai stocks fell 8.5% in a single trading session. The market ended the month 29.1% below its June 12 high. Are the Chinese really succeeding in shifting their export economy into a domestic-demand economy without losing steam? Hard to say, but given

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The Independent Adviser for Vanguard Investors • August 2015 • 3

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