(PUB) Investing 2016

& Mining , for instance, Vanguard reported prospectus expenses of 0.29%, but then acknowledged in the footnotes that the actual expense ratio was 0.35%. Vanguard wrote that the difference was due to performance fee adjustments—the manager was docked less money in the current year versus the prior year. So, as I said, the prospectus numbers are simply estimates. Pulling all the numbers for the 34 different funds that reported in January, it’s pretty evident that Vanguard’s costs

fluctuate throughout the year,” and that “slicing and dicing in that fashion is misleading to investors.” I’d say that if you want to talk about misleading, then you shouldn’t claim that estimates are actual, real-world numbers inves- tors can rely on. (As I noted, take a look at Precious Metals & Mining’s annual report for evidence.) Using esti- mates is misleading and sensationalist. Of course, Vanguard wasn’t about to tell TheStreet.com or its shareholders why operating expenses rose in the second half of 2015, but that’s another story. n

were going up in the latter part of 2015 and into 2016. Twenty-nine of the 34 funds saw expenses rise over the six months ending January 31 by anywhere from 4% to 17%. Now, just to be clear, when I first released my findings that more than 50 funds saw expense ratios rise in the second half of 2015, TheStreet. com reported that Vanguard claimed my reporting was “sensationalist.” I had to laugh, since Vanguard’s argument was that their prospectus estimates were accurate and that “expense ratios will

NEW FUNDS More Options for Income

the PowerShares International Dividend Achievers ETF (PID), to start to build some expectations around the new fund.

As you can see in the relative perfor- mance chart on page 6, there have been periods when the Dividend Achievers >

OVER TWO WEEKS , Vanguard launched four funds—two foreign stock index funds and two actively managed bond funds—that aim in part to meet investors’ demands for greater income. Though the promise of greater yields is tempting, I wouldn’t rush to buy any of these funds. Let’s start with the foreign stock index funds. First announced back in September, International Dividend Appreciation Index and International High Dividend Yield Index saw their launch dates pushed back three times. They finally opened in late February in both open-end and ETF formats. Expenses are low. The Investor shares of International Dividend Appreciation Index are estimating expenses of 0.35%, while the Admiral and ETF shares are coming in at 0.25%. The expenses on International High Dividend Yield Index are estimated to be 5 basis points, or 0.05% higher— so 0.40% for the Investor shares and 0.30% for the Admiral and ETF shares. International Dividend Appreciation Indexaims to trackahigher-qualityvariant of the NASDAQ International Dividend Achievers Index called the NASDAQ International Dividend Achievers Select Index. The Select version does not have a long track record, but we can look to the non-Select index, which dates to September 2005 and is tracked by

QUOTABLE “Best Of” Lists

I DON’T KNOW ABOUT YOU, but when I see financial journals publishing “Best Of” lists of mutual funds, ETFs, stocks or what-have-you, I tend to run the other way. What is considered the “best” one year can often be the worst the next, or (as is usually the case with these lists) one year’s best is simply forgotten in the following year. I used to track “Best Of” lists from Bloomberg BusinessWeek , Forbes , Money , SmartMoney and the like to see if there was any agreement between them (there was little), but after a while the year-to-year changes were so huge and without explanation that, well, it got to be a fruitless exercise. So, I was amused to see Vanguard giving “Best Of” lists their seal of approval. Now, I’m not surprised that they recently trumpeted landing six of their ETFs on the inaugural “Kiplinger’s ETF 20” list, but I was surprised to read that “‘Best of’ lists such as the ‘Kiplinger’s ETF 20’ are a great place to start your evaluation of investment options.” Really? Well, I guess the caveats in this statement give Vanguard an out, but imagine my surprise when Vanguard’s posting to financial advisers on the same topic toned the advice way down, and simply said that lists like Kiplinger’s “may be popular with clients and a basis of conversation.” They’re closer to the truth there. The gist of my conversation with a client about these lists would be to ignore them, as there is always one factor or another that drives the selec- tion process that may be at odds with your own criteria for finding suitable investments. Performance over a single point in time, operating expenses and trading volume may be of interest—or may not. Just take a look, if you can find them, at the past few years of Money ’s “Best Of” lists. How is it that MidCap ETF shows up on the list in 2010 but wasn’t found in, say, the 2014 or 2015 lists? Did the fund change? (No.) Did the operating expense go up? (Again, no.) Or did the list’s criteria for inclusion change? (Maybe.) The same question could be asked of World ex-U.S. ETF or Emerging Markets Stock ETF , both of which were also on the 2010 list. As I said, don’t give those “Best Of” lists a second glance.

The Independent Adviser for Vanguard Investors • April 2016 • 5

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