If there’s one thing I got wrong this year, it was my sense that stock investors were headed for increasing volatility after years of calm. Bah!
Consider November: The Dow Jones Industrial Average hit no fewer than 12 all-time highs in just 19 trading days (the S&P 500 index did the same). But those highs came on slimmer and slimmer gains. On all but three days, the Dow gained 0.23% or less to reach a new peak. Heck, on the final day of the month the Dow hit a high on just a 0.49-point rise.
This doesn’t mean the market is necessarily topping out, but it could be interpreted to mean that it isn’t wild-eyed optimists driving the indexes higher and higher. And for all the 31 new highs set this year, the Dow is only up 7.6% through November, while the S&P 500 is up 11.9%. Optimistic? Yes. Wildly so? No.
And look what’s been leading the charge this year: Large caps and long bonds. Vanguard Extended Duration ETF (EDV) has soared 37.3%, while Primecap Management’s three Vanguard funds are up between 19.1% and 19.7% on strong stock picking, primarily among bigger fare.
Foreign stocks are beginning to show some appeal as well — selectively. I had said that despite Vanguard International Growth Fund Investor Shares (VWIGX) lagging Vanguard Total International Stock Index Fund Investor Shares (VGTSX) by about 2% so far in 2014, I was still a big fan and expected it to outperform over time.
In November, the International Growth fund closed the gap to just 0.4%. Remember, while month-to-month performance variations may make you think you’ve erred in buying one fund or manager over another, they’re inevitable. If you’re going to win the investment challenge, you need to take the long view.
One of Vanguard’s newest funds, Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX), is having a bang-up year. Up 14.1%, this fund has generated particularly stellar returns from its foreign holdings. I expect the fund, which has attracted very little new cash other than what comes in through its 20% position in Vanguard Managed Payout Fund Investor Shares (VPGDX), will see much bigger inflows next year as performance-chasers jump on its bandwagon. Be aware that, despite a great start out of the gate, this is still an untested strategy in all manner of markets.
Lastly, Vanguard has opened a swag store at www.vanguardgear.com. Does the store generate enough profit to cover its costs, or does this fall under the company’s marketing budget? I doubt they’re going to sell tons of Vanguard t-shirts, but with millions of captive customers, the potential to stuff a flyer into your account statements is there. If nothing else, the copywriters had some fun with their product descriptions, including the promotion for its Vanguard-branded golf-club head covers: “How are your investments like a set of golf clubs? They both help drive you toward success.”
Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.