Active

Management
The Vanguard
Way
Buy The Manager,
Not The Fund
Partnering with
Vanguards Top Guns,

Who Says You Cant Beat

the Indexes?

Buy The Manager, Not The Fund

What Makes A Top Gun Manager?

Longevity I like a long track record, no flashes in
the pan
Experience Investing in both bull and bear markets
Consistency Steady outperformance, not one great
year
Strong back-up Good analysts/partners able to
step in and take over
Willingness to admitand learn frommistakes
Antipathy to the flavor of the month investment
style
Finally I dont like too many cooks in the kitchen

Some Top Guns

In The Stock-Picking Business

Mutual Fund Names Do Investors A

Disservice

Joel Fried, Al Mordecai and team at PRIMECAP

Management

Strategic, Growth, Opportunity, Aggressive,

Value, Contrarian, Low, High, World, Yield

Don Kilbride, Wellington Management

PRIMECAP Odyssey Aggressive Growth (POAGX), PRIMECAP

Odyssey Growth (POGRX), PRIMECAP Odyssey Stock (POSKX)
and Vanguard Capital Opportunity (VHCOX)
Vanguard Dividend Growth (VDIGX)

Jim Barrow & Mark Giambrone, Barrow, Hanley et al

Whats Critical Is The Person Whos Pulling

The Trigger

Vanguard Selected Value (VASVX)

Jean Hynes and team at Wellington Management

Vanguard Health Care (VGHCX) and Hartford Healthcare
(HGHAX)

Even Vanguard Can Hire Lousy Managers,

And They Have

Relative Return Graphs Allow You to

Compare Performance Over Any Period

Mountain Charts Confirm What Relative

Performance Graphs Illustrate
$3,000

1.80

U.S. Stocks were

41.5% better than
Bonds

1.60

Total Bond Market Index

Total International Index
$2,500

Total Stock Market Index

1.40
$2,000
1.20
$1,500

1.00

0.80

$1,000

0.60

U.S. Stocks were

11.7% worse than
Foreign stocks

U.S. Stocks vs. U.S. Bonds

U.S. Stocks vs. Foreign Stocks

0.40
Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

U.S. Stocks were

41.5% better than Bonds and
11.7% worse than Foreign Stocks

$500

$Apr-03

The Same Comparison from 2008

through 2013

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Capital Opportunity Has Put Index

Funds To Shame
2.50

1.50
1.40

U.S. Stocks vs. U.S. Bonds

1.30

U.S. Stocks vs. Foreign Stocks

2.00

1.20
1.50

U.S. Stocks were

40% better than
Foreign Stocks

1.10
1.00

1.00
0.90

Capital Opportunity vs. 500 Index

0.80

0.50

0.70

U.S. Stocks were

fractionally better
than Bonds

0.60
0.50
Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Capital Opportunity vs. MidCap

Growth Index

Apr-13

Since Its 1992 Inception, Dividend

Growth Has Lagged The Market

Good Management Compounds Wealth

1.20
$7,000

500 Index

1.10

$6,000

PRIMECAP Management's Capital Opportunity

1.00

$5,000

0.90
$4,000

0.80

$3,000

0.70

$2,000

0.60

$1,000

0.50

$-

Top Guns Can Fly Lots of Planes

PRIMECAPs Odyssey Funds Are Great Substitutes

1.35
1.30
1.25
1.20
1.15
1.10
1.05

Dividend Growth vs. 500 Index

When lines are rising, the Odyssey funds are outperforming

(2004present)

But Since Don Kilbride Took Over, Its A

Different Story
1.30
1.25

Odyssey Agg. Growth vs. Capital Opp.

Odyssey Growth vs. PRIMECAP

1.20
1.15
1.10
1.05

1.00
1.00
0.95
0.90
0.85

0.95

Kilbride's Dividend Growth vs. 500 Index

0.90

Kilbrides Dividend Growth

Better Stock-Picking, Bigger Profits

Barrow Puts The Index Giant To Shame

$3,000

$1,800

500 Index
$1,600

500 Index
$2,500

Kilbride's Dividend Growth

$1,400

Barrow's Selected Value

$2,000

$1,200

$1,500

$1,000
$1,000
$800
$500
$600
$-

$400

Selected Value vs. 500 Index

The Ugly: U.S. Growth vs. 500 Index

1.30

1.40

1.20

1.30

1.10
1.00

1.20
1.10
1.00

0.90
0.90
0.80
0.80
0.70
0.60

0.70
0.60

0.50

0.50

0.40

0.40

The Manager Matters And Vanguard

Picked a Stinker Here

Too Many Managers = Dumb

Diversification
Vanguard Diversified Equity vs. Total Stock Market
(line rises when Diversified Equity outperforms)

$50,000
$45,000

U.S. Growth
500 Index

$40,000

1.10
1.08

$35,000

1.06

$30,000

1.04

$25,000

1.02

$20,000

1.00

$15,000

0.98

$10,000

0.96

$5,000

Fund launched Prior returns

estimated using
component fund
performance

0.94

$-

0.92

Dumb Diversification

You Dont Need 40 Managers to Build A

Diversified Portfolio

Over-diversification of managers is not what

investors are looking for
Vanguard Diversified Equity is a classic
example
a fund of 8 funds
run by 18 firms
with 42 named managers
= Dumbing Down Active Management

A 22+-year Performance Track Record

10-year

20-year

Since
Inception
(12/1990)

28.5%

158.8%

777.7%

1107.3%

11.8%

Conservative
Growth Model
Portfolio

30.0%

138.6%

517.8%

755.0%

10.1%

Income Model
Portfolio

34.7%

99.5%

376.6%

548.2%

8.7%

Growth Index
Model Portfolio

26.7%

152.9%

500 Index

28.3%

111.2%

427.5%

650.8%

9.4%

5-year
Growth Model
Portfolio

Total Bond
Market Index

Avg.
Annld
Ret.

Diversification With Great Managers

What Lost Decade?

1.5

1.4

1.3

1.2

1.1

Growth Model Portfolio vs. 500 Index

1.0

Conservative Growth Model vs. 500 Index

0.9

31.2%

61.8%

217.5%

311.5%

6.5%

Note: Returns are through 4/30/2013; multi-year periods show total returns.
Growth Index Model Portfolios inception date is 3/1/1995.

A Decade-Plus of Growth And A Decade

of Outperformance

Rolling Returns
1-year
Average

3-year

Worst Average

5-year

Worst Average

$2,500

500 Index

Worst

Conservative Growth Model

Growth Model
12.6%
Portfolio

-42.1%

11.5%

-12.5%

11.2%

-3.1%

$2,000

Conservative
Growth Model 10.5%
Portfolio

-37.3%

9.5%

-10.7%

9.1%

-2.9%

$1,500

Income Model
Portfolio

-27.3%

8.2%

-7.8%

7.9%

-2.2%

$1,000

-43.3%

8.8%

-16.1%

8.2%

-6.7%

-3.7%

6.3%

1.8%

6.3%

3.4%

8.9%

500 Index 10.2%

Total Bond
Market Index

6.6%

Growth Model Portfolio

$500

$-

Note: Table covers rolling periods from Models 12/31/1990 inception through
4/30/2013. Multi-year periods are annualized.

[Wieners
portfolios]
average riskadjusted
outperformance is
substantial
Wieners star is
his Growth
portfolio.
Vanguard versus DFA
& WisdomTree, and the
Value Added by Dan
Wiener, Edward Tower
and Yichong Zhang, Duke
University Department of
Economics (2009)