Here are some new investments that those saving for or living in retirement might consider for their...
Vanguard’s Exclusive Fund Club
03/10/2009 11:00 am EST
Dan Wiener, editor of The Independent Adviser for Vanguard Investors, recommends an outstanding fund, which is closed but can be accessed by a select few Vanguard investors.
Vanguard shut the doors on Vanguard Capital Opportunity (VHCOX), along with big brother Vanguard PRIMECAP (VPMCX), for what may have been the last time in 2004, and existing shareholders are limited to putting $25,000 or less in new money into the fund each year. (Vanguard Flagship, or high-net-worth, investors can open new accounts in this fund, though.)
What makes this fund so good is that the five primary members of the PRIMECAP Management investment team operate as independent entities, each investing a portion of the portfolio, but all seeking the same types of companies: those with the potential for rapid earnings growth, but which are selling at a discount for one or more reasons.
This strategy [is] known as growth at a reasonable price, or GARP. If the managers have done their homework properly (and they usually do), when a company’s fortunes turn, the stocks can take off on multiyear runs.
If one or more of the team focuses on the same stock, that company gets a larger allocation in the portfolio. That’s why we’ll find the fund’s top ten holdings consistently soaking up 30% to 40% of assets.
Focused investing is, to my way of thinking, the best kind of investing and the antithesis to indexing. That’s why I consider this fund a core growth component. Its mid-cap holdings only add to its appeal. One thing you don’t want to do, and shouldn’t do, is trade in and out of this fund. Capital Opportunity charges a 1% back-end load on the sale of any shares purchased (not including those bought through reinvestment) and held for less than one year.
Of course, trying to “time” this fund would be a fool’s game. The PRIMECAP management team’s short-term performance can be quite variable: [They] beat their index benchmarks only about 57% to 59% of the time on a month-to-month basis. Yet that slight advantage accrues dramatically to their outperformance.
[For those who can’t invest in Capital Opportunity], my number-one pick would be PRIMECAP Odyssey Aggressive Growth (POAGX). Not surprisingly, Vanguard doesn’t offer the fund as an option through its FundAccessbrokerage system. But you can buy it directly by going to www.odysseyfunds.com. The minimum is just $2,000.
I have a substantial holding in POAGX and have, for years now, shoveled annual capital gains and income distributions from Capital Opportunity into the younger, smaller fund to take advantage of PRIMECAP’s smaller-cap stock choices.
Capital Opportunity has returned 2.5x the return of the benchmark while the newer Odyssey fund has already outperformed by about 25% since its inception.
A person with a 25-year time horizon, for instance, could start with 65% stocks, 25% bonds and 10% in cash. Then, after each year, sell off the longest-term and riskiest portfolio, keeping the near-term and safer portfolios intact.
Related Articles on FUNDS
Inflation favors value stocks, especially small-cap value stocks. In line with our expectation of ri...
I like Leuthold Core Investment (LCORX) in this late stage of the economic and investment cycle, exp...
In the ongoing tug of war between large- and small-cap stocks, the latter has recently gotten the up...