The three managers of Akre Focus Retail Class (AKRE) liken their investment process to a “thre...
Going for the Big Caps
12/08/2009 10:45 am EST
Dan Wiener, editor of the Independent Adviser for Vanguard Investors, says a Vanguard fund has the right exposure to large dividend-paying stocks, the market’s sweet spot now.
Since bottoming in the spring, durable goods orders and shipments have been inching back up, but as with so many of the signals that the economy is beginning to recover, the rebound has been anything but robust or steady.
You may have noticed recently that there's a lot more attention being paid to large-cap stocks in the press, reaching a zenith with a cover story in [a recent] Barron's. You and I have been investing in large-cap dividend-paying stocks all year, particularly with our investments in Vanguard Dividend Growth (VDIGX) and to a lesser extent, Vanguard Health Care (VGHCX).
You don't need to go chasing the investment choice du jour, because you already own it. And Dividend Growth is not just moving ahead of funds of smaller stocks, but it's also beating the indexes. For instance, the fund was losing ground to Vanguard 500 Index (a larger-cap index than Total Stock Market) from February through September, but then turned the corner. That's the "trend" that some are seeing now. In October, Dividend Growth beat 500 Index by 1.8 percentage points, and [it gained] another percentage point in November.
I'm recommending you sell Vanguard Growth & Income and divide the proceeds evenly between Dividend Growth and a new position in Vanguard MidCap Index (VIMSX). I've long held that the folks at Franklin Portfolio (now Mellon Capital) were able to tweak their computers to generate better-than-market returns with no more than market risk, while hewing closely to the Standard & Poor’s 500 index.
And they did for a long time, but their computers seem to be on the fritz, and with management changes there, I am not sure what will bring their ship around again. Surprisingly, in their most recent letter to shareholders, there isn't a lot I was able to read that would give me hope for a return to the fund's prior index-beating ways, and I note that turnover in the fund's portfolio actually went down over the past fiscal year despite the moves in the market—suggesting possibly that the portfolio's strategies are just not up to the task of the more volatile markets we've seen recently and may see in the months to come.
Finally, I'd simply like to put some more money into the large-cap, balance sheet-rich companies that Don Kilbride buys at Dividend Growth, plus add some more mid-caps to our holdings.
Again, sell Growth & Income and split the proceeds between more shares in Dividend Growth and a new small position in MidCap Index.
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