(PUB) Investing 2016

IT’S MY MANTRA: Buy the manager, not the fund. And it works. But you wouldn’t know that reading the latest semiannual report on Capital Opportunity , the rocket-ship fund run by the PRIMECAP management team in Pasadena. In his Chairman’s Letter , Bill McNabb notes the fund’s “nearly 12%” return since its 1995 inception compared to the stock market’s 8% return and the Russell MidCap Growth index’s “close to” 9% return over the same period. PERFORMANCE Buy the Manager

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The issue is that the fund did horri- bly in its first years. And PRIMECAP wasn’t managing it then. They only took over once the former manager was found to have “embellished” his record and horribly misfired on the fund itself. Why do I mention this? Because it makes a difference. While Capital Opportunity returned an annualized 11.7% from inception through the end of March 2016 (the period McNabb writes about), under PRIMECAP’s watch, shareholders earned almost a full percentage point more: 12.6%. Does that matter? Yes, by about 18%. Consider that a $3,000 investment in the fund at inception would have turned into $27,525 if you’d earned that 11.7% return for the full period through March. But PRIMECAP’s 12.6% would have yielded an account 17.9% larger, worth $32,440. Vanguard likes to all but ignore the fact that the choice of manager makes a difference. But it does, and on Capital Opportunity the difference is writ large. n

When I started this newsletter in 1991, I had to thumb through paper SEC filings and copy fund data by hand. But now, thanks to advances in technology and the efforts of our team at InvestorPlace, Jeff and I are able to bring you an unprecedented research tool for Vanguard investors: The Independent Vanguard Fund Analyze r. The Fund Analyzer takes everything you know from our monthly newsletter and annual guide- book to a whole new level. Like our guidebook, it contains comprehensive data on every Vanguard fund we track. And like our newsletter, it’s updated every month. (Some data is even updated daily.) But unlike either, it gives you direct access to a suite of online, interactive charts, tables, and other analytical tools created directly from our in-house database—and it’s designed to work with any computer or mobile device you own. It’s like being right there in our office with us, as your own inde- pendent fund analyst on our research team, with our proprietary risk and return statistics like rolling returns, relative returns, Maximum Cumulative Loss (MCL), and many more at your fingertips. And the best part is, you can get the Fund Analyzer for only $199 a year. For details on how you can try it risk-free for 60 days, visit www.thefundanalyzer.com/JoinNow or call 800/211-7641 and mention code MT9207 .

1%Makes a Difference Over 20 Years

$35,000

Compounding at 11.7% Compounding at 12.6%

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0

5

10 Years

15

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DO-IT-NOW ACTION RECOMMENDATIONS 4 Does S&P 500 ETF earn more after taxes than 500 Index ? How about other ETFs? The proof’s in the numbers, so don’t count traditional funds out if you’re going passive. (See page 6) 4 Build diversification into your portfolio, but don’t do it with multimanager funds like Morgan Growth or Explorer , which take things too far. (See pages 4 & 12) 4 Will the Fed raise rates in June? A better question to ask yourself is if it even matters. (See page 15)

Daniel P. Wiener is America’s leading expert on the Vanguard family of funds. He is founder of the Fund Family Shareholder Association and chairman and chief executive officer of Adviser Investments, LLC, a Newton, Massachusetts, investment advisory firm (800-492-6868). As

Jeffrey D. DeMaso, Editor/Director of Research, works directly with Dan Wiener researching and writing the multiple-award winning Independent Adviser for Vanguard Investors newsletter. He also leads the analyst team for Adviser Investments, LLC. Jeff gradu-

editor of The Independent Adviser for Vanguard Investors , he is a five-time recipient of the Newsletter Publishers Foundation’s Editorial Excellence Award. He also edits the annual Independent Guide to the Vanguard Funds. Mr. Wiener is often quoted in the nation’s leading financial publications.

ated magna cum laude from Tufts University with a B.A. in economics, holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the Boston Security Analysts Society.

16 • Fund Family Shareholder Association

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