(PUB) Investing 2016

insight, but it does reflect Vanguard’s thinking on the subject. One thought I have is they’ll seed the fund by offering it only to investors who are part of their advisory service program. Once it’s got sufficient assets, then they’ll open it up to the public. We’ll just have to wait to see what’s up with this new active emerging markets bond offering. Some of you asked about the Capital Value trade I made in September. Over the past three months, the fund is up 5.7% versus Total Stock Market Index’s 6.2% gain. Remember that this is a long-term strategy and is based on buy- ing when Capital Value is not perform- ing as well as the market. Since you can’t catch the bottom, you have to take a long-term view here. I’m sticking with the strategy. Also, the 2016 Hot Hands fund is International Explorer . I’ll have the details on the Hot Hands strategy next month, but the strategy aims to identify hot funds—and with an 8.6% gain in 2015, International Explorer is a “hot” fund in a “cold” market space (foreign stocks). Finally, let me put a plug in for what may be the best financial book of the

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2015 Scoreboard

not only did Vanguard assure him that they’d take care of his distributions, but when it wasn’t done, they sent him the forms they needed, then told him he wouldn’t make the end-of-year cutoff and would owe IRS penalties. Happy NewYear? Vanguard is proposing to launch an actively run bond fund called Core Bond during the first quarter of 2016. The fund will have a trio of Vanguard veterans at the helm, building the port- folio with both investment-grade and non-investment-grade bonds. Junk bonds will be layered in at up to 5% of assets, while what Vanguard calls “medium quality” bonds will take up as much as 30% of assets. Up to 10% of the fund can be invested in non-dollar- denominated bonds. I think this new fund has the poten- tial to outshine Total Bond Market Index over time. But I wouldn’t rush into it, as I think it will take some assets to build the diversified portfo- lio Vanguard needs to make the fund shine. Why do I think this fund will do well? First, three accomplished man- agers will run it. Second, Vanguard keeps very tight reins on its active bond funds, prescribing limits on the amount of duration or risk the managers can take vis-à-vis their benchmarks, as well as how far outside the benchmark the managers can go when search- ing for bonds. So add all that up with expense ratios that are just 5 to 8 basis points higher than Total Bond Market’s comparable-share-class expenses, and you’ve got a pretty low hurdle for the managers to exceed.

End 2015 Change 2015

Dow Jones S&P 500 NASDAQ Russell 2000 Stoxx 600

17425.03 2043.94 5007.41 1135.89 365.81 6242.32 10743.01 19033.71 3539.18 21914.4 43349.96 $1,060.50

-2.2% -0.7% 5.7% -5.7% 6.8% -4.9% 9.6% 9.1% 9.4% -7.2% -13.3% -10.4% -30.4% -19.8%

London Frankfurt

Tokyo

Shanghai Hong Kong Sao Paulo Gold (oz.)

Oil (bbl)

$37.10 $2.35

Nat. Gas (MMBtu)

3-mo. T-bill 10-yr. T-bond 30-yr. T-bond

0.17% up 13 bp 2.27% up 10 bp 3.02% up 27 bp 0.50% up 25 bp

Fed funds

Euro Yen

$1.086 $0.008 $0.154

-10.2% -0.3% -4.4%

Renminbi

Vanguard also has filed to offer an active emerging markets bond fund, but there’s a catch. Emerging Markets Bond , to be run by Daniel Shaykevich, a former member of BlackRock’s EM debt team who’s been at Vanguard for a few years, will be more diversified than Emerging Markets Government Bond Index and is supposedly going to offer up Investor and Admiral shares.

year, The Devil’s Financial Dictionary . Written by my friend Jason Zweig, this funny and acerbic take on Wall Street jargon and hypocrisies belongs on every investor’s and would-be investor’s desk. If FedEx or UPS botched your holiday gift-giving and you’re looking for something

However, Vanguard says the fund will not be “available for immediate public invest- ment.” That could mean many things. It’s worth noting that Vanguard Chairman Bill McNabb recently wrote that investing in emerging markets is “only suitable for those will-

better than that faux-leather bow tie you’ve been trying to return, buy this instead. You won’t be sorry. n

ing to accept a higher level of volatility than one might expect from developed markets.” Hardly an earth-shattering

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The Independent Adviser for Vanguard Investors • January 2016 • 3

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