The Statistics Paint a Brighter Picture
07/07/2006 12:00 am EST
Daniel Wiener, the expert on Vanguard funds—as well as fund investing in general—consistently outpaces the markets, using a conservative, long-term approach. Here, the advisor offers an insightful assessment of recent events and his current pick.
“Inflation was the source of much hand-wringing and stock selling. After six months of rising markets, it’s entirely within bounds for a correction to be in order. And we got one—of a sort. Like all declines that follow a period of relative calm (and rising stock prices) investor nervousness fed on itself, and the focus turned almost exclusively to the known negatives while ignoring, in my view, the positives.”
“The $13 trillion US economy may be slowing. But it’s still growing (up 5.3% in the first quarter). And while inflation may finally be rearing its head a bit, we’re a far cry from rampant price increases taking a bite out of our quality of life.
“Corporations continue to wring waste out of their operations. Employment costs remain under control. And those who thought the service sector of our economy (2/3 of GDP) was contracting, got a surprise in the latest data. So, things aren’t so dark.
“And what of another Fed rate increase? With something over $2 trillion on balance sheets, it’s not as if corporate America is going to suddenly go into arrears over a borrowing binge made all the more expensive by another 25 basis-point rate hike. While consumer spending has been slowed by rising mortgage rates, corporate spending continues apace.” Wiener points out that the expansion plans of blue-chip companies such as UPS are a positive global economic bellwether. With that in mind, he writes about a fund that may be attractive:
“With a bit more than one month of operations behind it, Vanguard is still not reporting a yield for Dividend Appreciation Index (VDAIX). But let me warn you once again: This is not a high-yield stock fund. However, I recently reviewed five years of back-tested benchmark performance data for the custom index Vanguard is using for Dividend Appreciation Index, and its seems Vanguard’s reduction in selected stocks appears to give the ‘select’ index a significant boost in performance over the broader index. Over a full market cycle, this fund could turn out to be an excellent investment vehicle in the large-cap stock arena.
“While it may not wow you with flashy returns in bull markets, its staying power when bears are roaming could make it well worth adding to a portfolio where a conservative, large-cap index fund is desired.”
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