The torrent of news is a reminder that there’s more information available to investors than ever before. Not all of it is valuable, however. Simply put, there are some developments worth paying attention to, but many more that are worth ignoring.
In the most recently published Vanguard fund reports, which cover the six months ended February 29, 2016, some of the advisors that manage Vanguard funds provided guidance for investors inundated by information.
“As we reflect on the past six months, amid concerns about global growth and geopolitics, we are reminded that most of what passes for news in the investment world is noise that is either irrelevant or misleading to the long-term investor,” wrote James K. Anderson and Kave Sigaroudinia of Baillie Gifford Overseas Ltd., one of the three firms that manage Vanguard International Growth Fund. “In contrast, significant trends can emerge from incremental developments over time that may seem benign and boring but are very powerful.”
Messrs. Anderson and Sigaroudinia cited examples of those trends and how those trends affect the management of their portfolio.
“The world is changing at a remarkable pace, driven by technological progress and innovation,” they wrote. “We view internet and health care companies as particular long-term beneficiaries. The internet continues to transform a wide range of industries, from advertising to media, retail, and financial services. These areas are already well-represented in our portion of the portfolio, with significant holdings in a small number of established leaders.
“Health care will also look very different in five to ten years, given the acceleration in our understanding of human biology. These trends are earlier in their development, though, so it is more difficult to know which companies will be successful. As a result, our holdings tend to be smaller, but our research effort is substantial as we seek to deepen our understanding of areas such as genomic science.”
For the five advisors that manage Vanguard U.S. Growth Fund, research is vital as they decide which companies to invest in. They’re hunting for quality firms that display strong opportunities for growth.
Emphasis on research, patience
At Jennison Associates LLC, portfolio managers Kathleen A. McCarragher and Blair A. Boyer offered a quick look at their process.
“We conduct rigorous research to determine company, industry, and sector fundamentals and prospects over intermediate and longer terms, projecting how markets, industries, and businesses will evolve over time,” the pair wrote. “With this perspective, we build our portfolio through individual stock selection based on company fundamentals.”
Although still minuscule, yields for money market funds are greater than they’ve been in years. Yields for these funds rose in anticipation—and following—the Federal Reserve’s mid-December interest rate hike, its first in almost a decade.
Money market movement
In his report to shareholders, Vanguard Fixed Income Group’s David Glocke, portfolio manager of Vanguard Money Market Funds, noted how he and his team were well positioned for the rate increase.
“As a December rate increase looked more likely, we made some adjustments to the three funds, including shortening their weighted average maturity,” Mr. Glocke wrote. “Doing so meant we received principal from maturing securities sooner, and we were then able to reinvest it at higher rates. The resulting rise in yields for the funds, along with their low expense ratios, accounted for a sizable part of their outperformance versus their peer groups.”
In his closing remarks in letters to shareholders, Vanguard Chairman and CEO Bill McNabb described Vanguard’s unique corporate structure and how it helps our shareholders.
Corporate structure benefits clients
“We don’t have stockholders or outside owners,” Mr. McNabb wrote. “Instead, Vanguard is owned by its funds, which in turn are owned by you—Vanguard clients. This structure matters because it ensures that our interests are completely aligned with those of our clients. We never have to weigh what’s best for clients against what’s best for the company’s owners; their interests are one and the same. Our client-owned structure is what allows us to run our funds at cost, and it’s why Vanguard’s expense ratios remain among the lowest in the industry.”
Other recently published reports:
Vanguard Explorer Value™ Fund
Vanguard FTSE Social Index Fund
Vanguard Mega Cap Index Funds
Vanguard Sector Bond Index Funds
Vanguard U.S. Sector Index Funds
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