(PUB) Investing 2016

15

April 2016

Morningstar FundInvestor

David Poppe will remain as sole manager of the fund. (He may add a comanager in the future.) He also plans to establish an investment committee with himself and three other senior members of the team. The plan is to make the process more collaborative, as well as to introduce checks and balances into the process. For example, the other three members of the investment committee could override Poppe on a buy/sell decision. The investment committee is also working to draft a set of rules around risk management. With Goldfarb leaving the firm, the board will be down another person. With Tim Medley having joined the board on Monday, it would like to add another outside board member as well as an insider. Top-holding Valeant Pharmaceuticals VRX has been immersed in controversy during the past six months. The issues initially concerned the company’s relationship with now-defunct pharmacy Philidor and accounting questions but quickly morphed into more-fundamental questions about its business model, pricing practices, management, transparency, and debt load, as well as an SEC investigation. Valeant’s shares fell more than 40% on March 15 after the company lowered its 2016 forecasts and raised the possibility of default on some of its debt. As Valeant’s largest shareholder, this fund has been hit hard on a number of fronts. With Valeant’s shares down more than 70% since mid-September, the fund’s once-exceptional trailing results are in tatters going back 10 years. The damage has been so severe because the Valeant position was 28 . 7% of assets in June 2015 before the share price started falling last August. Exiting shareholders have put further pressure on the fund by pulling out nearly $800 million over the six months through February 2016 . Given that the fund held just 5 . 2% of assets in cash as of year-end 2015 , which was low by historical standards, management has likely been selling shares to meet redemptions.

A Very Contrarian Start to 2016 The first quarter of 2016 proved to be quite a reversal of fortune for a variety of markets. The worst-per- forming fund categories from 2015 enjoyed good to great returns so far in 2016 . Latin American equity funds gained 15% , energy equity funds gained 2% , commodities funds rose 1% , and precious metals bounced 41% . On the flipside, the top-performing categories of 2015 started 2016 in the red for the most part. Japan funds were down 4% , health funds fell 13% , foreign small/mid-growth fell 2% , and technology fell 2% . One exception was consumer defensive, which had a strong gain of 4% in the first quarter. Vanguard Launches Foreign Dividend Funds Vanguard introduced its first dividend-oriented international equity index funds on March 2 . The new funds are Vanguard International High Dividend Yield Index VIHAX and Vanguard International Divi- dend Appreciation Index VIAAX . Vanguard International High Dividend Yield Index follows an income-investing strategy, focusing on companies with high dividend yields. The fund will seek to track the FTSE All-World ex US High Dividend Yield Index, a benchmark of more than 800 of the highest-yielding large-and mid-cap developed- and emerging-markets securities. Vanguard International Dividend Appreciation Index emphasizes stocks exhibiting dividend growth and seeks to track the Nasdaq International Dividend Achievers Select Index, which comprises more than 200 all-cap developed- and emerging-markets stocks with a track record of increasing annual dividend payments. Both funds have investor, admiral, and ETF share classes that come with minimum investments of $3 , 000 , $10 , 000 , and none, respectively. For Vanguard International High Dividend Yield Index, the expense ratio is 0 . 40% for Investor shares and 0 . 30% for the other two. For Vanguard International Dividend Appreciation Index, the Investor shares charge 0 . 35% while the other two share classes charge 0 . 25% . K