(PUB) Investing 2016

Directors’ Direct Holdings Peter F. Volanakis Minimum invested

Consensus Breaks Down Quickly HELD BY 9 BOARD MEMBERS: Prime Money Market, Total Stock Market Index HELD BY 6 BOARD MEMBERS: Emerging Markets Stock Index, Total International Stock Index HELD BY 5 BOARD MEMBERS: 500 Index, Intermediate-Term Tax-Exempt, SmallCap Index HELD BY 4 BOARD MEMBERS: Health Care, High Dividend Yield Index, PRIMECAP Core, Wellington HELD BY 3 BOARD MEMBERS: Capital Opportunity, Developed Markets Index, Dividend Appreciation Index, Extended Market Index, High-Yield Tax-Exempt, International Growth, Limited-Term Tax-Exempt, PRIMECAP, Short-Term Investment-Grade, SmallCap Growth Index HELD BY 2 BOARD MEMBERS: Dividend Growth, Explorer, Global Equity, Growth Index, Int.-T Inv.-Grade, International Explorer, LargeCap Index, MidCap Growth, Selected Value, Short-Term Tax-Exempt, T-M Capital Appreciation, Total Bond Market, Total International Bond Index, U.S. Growth, Windsor II, World ex-U.S. Index, World ex-U.S. SmallCap Index HELD BY 1 BOARD MEMBER: Capital Value, Convertible Securities, Diversified Equity, Emerging Markets Select Stock, Energy, Financials Index, High Yield Corp., Int.-T Bond Index, International Value, Long-Term Tax-Exempt, MidCap Growth Index, MidCap Index, Morgan Growth, PA Long- Term Tax-Ex., Pacific Index, REIT Index, Short-T Bond Index, SmallCap Value Index, Strategic Equity, Target 2050, T-M SmallCap, Treasury Money Market, Total World Stock Index, Value Index, Wellesley Income, Windsor

$2.6 million

No. of funds owned

29

Fees paid

$1.5 million

F. William McNabb III Minimum invested

$2.2 million

No. of funds owned

26

Fees paid

N.A.

JoAnn Heffernan Heisen Minimum invested

$1.6 million

No. of funds owned

19

Fees paid

$2.7 million

Mark Loughridge Minimum invested No. of funds owned

$1.4 million

14

Fees paid

$867,000

Amy Gutmann Minimum invested No. of funds owned

$1.4 million

16

Fees paid

$1.9 million

F. Joseph Loughrey Minimum invested

$1.1 million

ers, leaving some 100 funds with- out any board representation among shareholders. The bulk of the direc- tors’ money is concentrated in just a few funds. Nine of the 10 board members reporting for 2015 own shares in Total Stock Market and Prime Money Market , and six own shares in Total International Stock Index and Emerging Markets Stock Index . Five are invested in 500 Index , Intermediate-Term Tax-Exempt and SmallCap Index . I should note that because these board members are wealthy, they prefer to invest in tax- exempt funds. Just two own shares in Total Bond Market Index . The only actively managed equity funds to find even four board members as investors are Health Care and PRIMECAP Core . The active, balanced Wellington is also owned by four board members. Notable changes over the past year include one director’s sale of REIT Index , leaving that fund with just one director shareholder. Ditto for Wellesley Income and Emerging Markets Select Stock . On the plus side, Extended Market Index picked up two new director shareholders. So, how are Vanguard’s directors’ portfolios stacking up? Well, if you view this from 30,000 feet up, you might say that a board with invest-

was not fulfilling its regulatory obliga- tions. The fixes usually come after I’ve flagged the omissions. In calculating those “minimums,” I assumed that each director was at the low end of the stated range for every one of their holdings. For those with between $50,001 and $100,000 I assumed $50,001 as a mini- mum. For holdings “over $100,000” invested I assumed $100,001. Because of the varied timing of Vanguard’s disclosures, a few of the numbers I’m working with deal with ownership levels at the end of 2014, not 2015, and probably won’t be updated until December. I can’t help that; it’s just the way Vanguard works. Spreading the Wealth? So, what do the numbers tell us about how Vanguard’s directors invest- ed their Vanguard money in 2015? First off, it’s probably not a big sur- prise that the directors have focused their own money on index funds—not active funds. Oh, yes, certain board members own certain active funds, but there’s little consensus. That means lots of Vanguard shareholders who own Vanguard’s active funds do so without any director actually sitting at the table with us, eating that active cooking. Overall, just 64 funds count one or more board members as sharehold-

No. of funds owned

11

Fees paid

$1.4 million

Rajiv L. Gupta Minimum invested No. of funds owned

$1.0 million

10

Fees paid

$2.4 million

Emerson U. Fullwood Minimum invested

$930,000

No. of funds owned

13

Fees paid

$1.7 million

Scott C. Malpass Minimum invested No. of funds owned André F. Perold Minimum invested No. of funds owned Fees paid

$700,000

9

$836,000

$110,000

4

Fees paid

$2.1 million

ments in more than 60 funds isn’t mak- ing too terrible a showing. But consider that we really don’t know how big a commitment the directors have made, since the required disclosures are so minimal. I’ll give the directors as a group credit for owning more active equity funds than they don’t. But ownership is scattered about, and the commitment to the multimanager strategy, which I’m a critic of, is marginal at best. If it weren’t for Chairman Bill McNabb, Vanguard’s multimanaged equity funds would have a pretty slim roster of direc- tor shareholders. >

The Independent Adviser for Vanguard Investors • July 2016 • 5

FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641