(PUB) Investing 2016

Active Large-Cap Growth Funds Morgan Growth

PRIMECAP PRIMECAP Core

U.S. Growth

Social Idx

T-M Cap App

8/31/16

8/31/16

8/31/16

8/31/16

8/31/16

8/31/16

Number of Stocks

312 26 5.0

131 20.6

152 19.3

159 31.2

413 21.0

954 23.0

P/E

P/Book

3.8

3.3

5.0

2.8

2.9

Median Market Cap.

$51.2 4.6% 0.9% 41.2% 20.3% 6.9% 1.7% 4.4% 16.5% 9.3% 37.2% 1.8% 1.6% 0.3%

$66.9 9.6% 3.0% 8.6% 8.2% 0.4% 1.5% 7.0% 27.6% 15.5% 36.9% 1.9% 1.0% 0.0%

$51.2 11.0% 4.5% 9.9% 12.8% 0.8% 1.1% 8.6% 25.0% 17.6% 30.3% 2.7% 1.1% 0.0%

$51.2 1.4% 0.5% 38.5% 19.2% 5.6% 0.5% 9.2% 17.6% 7.8% 36.8% 1.0% 0.4% 0.1%

$69.8 0.4% 0.0% 19.7% 10.4% 10.9% 3.0% 23.7% 18.9% 6.9% 23.4% 2.0% 0.2% 0.6%

$60.2 0.1% 0.0% 9.8% 14.3% 8.3% 6.8% 19.7% 14.0% 10.2% 17.5% 3.6%

Foreign

Cash

Turnover

Sector Allocation Consumer Discretionary

Consumer Staples

Energy

Financials Health Care Industrials

Information Technology

Materials Telecom Utilities

—

5.6%

Top-10

23%

42%

32%

30%

24%

17%

1 2 3 4 5 6 7 8 9

Alphabet

Biogen

Amgen

Alphabet Facebook

Apple

Apple

Apple

Amgen Southwest Airlines

Alphabet Microsoft

Alphabet Microsoft ExxonMobil

Facebook

Eli Lilly

Eli Lilly Alphabet

Amazon.com

Amazon.com

Microsoft Alphabet

Visa Johnson & Johnson

Visa

Biogen Roche

MasterCard Microsoft

Facebook Johnson & Johnson

Microsoft Home Depot

Texas Instruments

Wells Fargo

Amazon.com

Adobe Systems Texas Instruments

Allergan

JPMorgan Chase Berkshire Hathaway

Amgen

FedEx Roche

JPMorgan Chase

Celgene Procter & Gamble

Facebook

Pepsi

CarMax Microsoft

PayPal Biogen

Pfizer Merck

General Electric Procter & Gamble

10

Bristol-Myers Squibb Southwest Airlines

investments, go ahead and invest here, but as I said, I’m skeptical.

because this fund’s $2.3 billion in assets aren’t invested in “bad” companies, this will somehowmake a difference. It won’t. Plus, how do you define a socially good company? Wells Fargo, a top-10 holding, was just fined $185 million for fraudulently opening some two mil- lion accounts for unsuspecting savers. Where’s the social good there? In fact, historically, Social Index has had a much larger allocation to financial stocks compared to Growth Index—as it does today, with 23.7% in financial stocks versus 12.5% for Growth Index. This difference has led to periods when there were stark per- formance divergences between the two index funds. Notably, during the credit crisis, that big allocation to financial stocks hurt Social Index—a lot. Over the past seven years, performance has been roughly a wash between the two growth-oriented index funds. If you believe that investing in Social Index will make the world bet- ter or makes you feel better about your

being a bit more “core” than its sib- lings, it has less of a focus on growth. This also makes it the least risky of the PRIMECAP Management-run funds. Dan and I both own it, but if you can tolerate a bit more risk, you may be able to reap higher returns in Odyssey Growth (a fund we also both own). Social Index Hold. Social Index is a large-cap growth fund with a portfolio of brand- name stocks, including Johnson & Johnson, Apple and Microsoft. In its early years, the fund tracked a Calvert index, but switched to a FTSE bench- mark in late 2005. The idea here is that companies in FTSE’s index have been screened for attractive social characteristics, and as such, will win out over their dirtier, more socially irresponsible competitors. I’m a skeptic, and believe that you should first invest to profit, and then support organi- zations whose missions match your own social goals rather than assuming that

STAR LifeStrategy Growth Sell. Just because it’s a fund of index funds doesn’t mean this is a static port- folio. For the past three years, this fund has held just four index funds, but in 2015, Vanguard increased the alloca- tion to both foreign stocks and bonds. Today its holdings are divided among Total Stock Market (48% of assets), Total International Stock (32%), Total Bond Market II (14%) and Total International Bond (6%). For those counting, that’s 80% in stock funds and 20% in bond funds. Foreign stocks now make up 40% of the allo- cation to stocks and foreign bonds account for 30% of the bond sleeve. Owning index funds can be a sound strategy, and this fund certainly makes diversified investing easy, particularly for those just starting out, but I think

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The Independent Adviser for Vanguard Investors • October 2016 • 7

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