(PUB) Investing 2015

TREATS FROM PAGE 1 >

Market Returns Since the Great Recession ’09 ’10 ’11 ’12

consumers will have no trouble borrow- ing for a house or car or other big-ticket item. Meanwhile, spending continues to rise, and though GDP expanded at just a 1.5% annualized pace in Q3 accord- ing to the first estimate, it already appears that there’s been a pickup in the current quarter as the housing market has strengthened. Corporate earnings were all over the map in Q3, but I take some opti- mism from reports that companies like FedEx and UPS are going to be hiring gobs of temporary workers for the holidays on expectations for a robust spending and shipping season. With a bit more than one-third of the S&P 500 companies having reported, profits are beating estimates. But on a total earn- ings basis, the extreme drops for the energy and materials sectors almost certainly point to an overall earnings decline for the entire collection of 500 companies. So from the rearview mirror per- spective, spending is good, economic activity is fair, earnings have been okay (not great), and housing and auto markets are strong. Now, look at pres- ent-day numbers on jobs, and you’ll see why the economy is even stronger than many pundits think. New claims for jobless benefits, which are just a week old (rather than months old) when reported, are at their lowest level in over 40 years. Yup, with a job- less rate of 5.1%, we are pretty darned close to full employment, which is just what we (and the Fed) want. October was also a month of con- tinuing Sturm und Drang over some high-flying biotechs, as well as poten-

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U.S. Stocks Foreign stocks

28.7% 17.1% 1.0% 16.3% 33.3% 12.4% 36.7% 11.1% -14.6% 18.1% 15.0% -4.2% 5.9% 6.4% 7.6% 4.0% -2.3% 5.8% 0.25% 0.01% 0.02% 0.02% 0.01% 0.01%

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Bonds Cash

strategy) next month, but for those who are following this trading plan, the fund I’ll track going forward is U.S. Growth . Remember, no strategy works all the time—there are no guarantees in the stock market. Last year’s October Hot Hands fund, PRIMECAP , earned a 5.7% return over the past year, com- pared to Total Stock Market ’s 4.3% return. PRIMECAP Odyssey Growth , the alternative that I suggested for those closed out of PRIMECAP, gained 7.0%. Personally, rather than buy U.S. Growth, I’ll be sticking with my PRIMECAP Management-run funds. With year-end fast approaching, so is “distribution season,” when mutual funds pay out both income and realized capital gains they’ve earned over the course of the year. Vanguard won’t give a first report until mid-November, but most U.S. stock funds have exhaust- ed the losses they booked during the credit crisis and now dominate the list of funds with realized gains on their books, while just one foreign fund, International Explorer , cracks the top 20 in terms of realized gains. Capital Value and Explorer , a perennial big distributor of gains, have realized gains totaling more than 10% of their quarter- end prices. With realized losses total- ing 93% of NAV, Precious Metals & Mining shouldn’t be distributing gains anytime soon. n

tial mergers among drug makers (Pfizer and Allergan) and drug retail- ers (Walgreens Boots and Rite-Aid). Health Care may not have matched the market’s rise, up 5.8% for the month, but for the year, its 9.7% gain is at the top of the heap. As I noted in my October 1 Hotline , for the first time since its 1984 inception, the fund’s managers are being held to a perfor- mance adjustment on their fees. So far, so good—they’ve earned a well- deserved extra couple of million dol- lars for their work. The month held plenty of other news for Vanguard investors. Windsor II ’s Jim Barrow said he would be step- ping down from that fund at year- end, though he will remain active on Selected Value . European Index and Pacific Index began tracking their new all-cap benchmarks in October. Vanguard has been rapidly reducing its fee waivers on its money market funds and has now gone on record saying it won’t try to claw back the more than $112 million in forgone fees. Yields on Federal Money Market and Prime Money Market have risen to 0.06% and 0.08%, respectively, while Treasury and tax-exempt funds remain pegged at 0.01%. Jeff and I will have a full report on the October Hot Hands momentum strategy (which, remember, is differ- ent from the calendar-year Hot Hands

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The Independent Adviser for Vanguard Investors • November 2015 • 3

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