Data Dependence Hello, this is Dan Wiener with the FFSA Vanguard Hotline for Thursday, April 30th. There are no changes recommended for any of our Model Portfolios. The economic data reflecting the impact of the coronavirus pandemic on the U.S. economy is starting to roll in, but it's early and it's incomplete. Consumer spending, the lifeblood of our economy, has dropped precipitously as we've hunkered down and sheltered in. The first quarter's economic contraction was estimated to have compounded at a 4.8% annualized rate, the worst performance since the fourth quarter of 2008. But, and here's a big caveat, that's the first preliminary report of three estimates we'll see on Q1 GDP, and revisions during recessions tend to get worse, not better. It's all we have to go on. Second, the first two months of the first quarter were fairly good. It wasn't until March that it became widely accepted that the coronavirus wasn't just some flu. So, the GDP report reflects only one really bad month—March. It's the second quarter—the one we're in now—that is going to really show how deeply economic activity retrenched. First-time claims for unemployment may have slowed, but it's a pyrrhic victory since the tally over the last six weeks totals some 30.3 million workers who've been let go—almost 19% of the U.S. workforce. The knock-on impact of 30 million people being out of work is huge, and while economists are making projections about what this means going forward, only the honest economists among them are admitting that these are guesses more than well-quantified estimates. It will be months before we see what's happened to data like household debt service levels and bankruptcy rates for individuals and businesses. Am I a bear? Absolutely not. I'm an optimist but also a realist. I'm encouraged by the fact that Gilead Science's remdesivir is showing some signs it might be a treatment for COVID-19, but it's a treatment, not a vaccine. And it's far from proven out, though production has already been ramped up just in case it is found conclusively to work. As far as vaccines and "herd immunity" goes, they are both a long way off. In the meantime, as a couple of governors have begun trying to reopen their states, I'm watching with bated breath for signs that we won't see new COVID-19 cases bloom. We're at least a few weeks away from knowing whether these all-clear calls were premature or not. All of that said, the stock markets have been on a tear since hitting their March lows. The S&P 500 index is up 31.4% since March 23rd, though it is still 13.2% below the high hit on February 19th. As of last night's close, 500 Index (VFIAX), with a gain of 13.9% in April, was on pace to record its best month since its 1976 inception. The disconnect between the fundamental economic and earnings data, which isn't pretty, and the market's rally is as wide as I can remember. But remember that not all of parts of the market have recovered as well as large U.S. stocks. SmallCap Index (VSMAX) and Total International Stock Index (VTIAX) are both still down 17% or so on the year. So, while the stocks that lead the stock market averages are doing fairly well, there are plenty of stocks and plenty of stock-picking styles that aren't. For instance, look at Vanguard's factor ETFs. U.S. Value Factor ETF (VFVA) is down 25.6% this year, and U.S. Multifactor ETF (VFMF) is off 19.1%. Only one factor ETF is ahead of the stock market for the year to date, U.S. Momentum Factor ETF (VFMO), which is loaded with just those large-caps that led the market higher in 2019 and have continued to do so this year. So, what's been doing well? Bonds. Top funds for the year include long-duration bond funds like Extended Duration Treasury ETF (EDV), up 33.6% through Wednesday night. Long-Term Treasury (VUSTX) is up 24.3%. On the flip side, Emerging Markets Government Bond Index (VGAVX) has fallen 11.4%. The best of the stock funds is U.S. Growth (VWUSX), which is up 3.0% for the year on the back of big technology bets that have paid off nicely. Growth Index (VIGRX) by comparison is down 0.7%. Energy (VGENX) and Energy ETF (VDE) remain the worst performers, down 31.8% and 35.8%, respectively. Among my favorite managers, the Health Care (VGHCX) team is showing a fractional 0.2% loss for the year, and Don Kilbride's Dividend Growth (VDIGX) is down just 8.8%. International Growth (VWIGX) is off just 4.6%, a quarter of the loss for Total International Stock Index. The PRIMECAP team is underperforming at the moment, with Capital Opportunity (VHCOX) down 11.0%. I'm not at all concerned by this. As you know, this is one of the best investment teams in the business—nothing has changed at PRIMECAP, and their process remains solid and consistent. If you have extra cash lying around, any and all of the aforementioned managers and funds are worthy of your further investment. Finally, in Vanguard news, the company is going to move its mailing operations down to El Paso, Texas this summer. That means mail sent to Vanguard will now go through processing facilities in Texas rather than straight to Malvern. And, rather than staff it themselves, Vanguard is going to use an outside contractor, Swiss Post Solutions, to manage their mail flow. Swiss Post, by the way is, yes, Switzerland's mail service, headquartered in Bern. It may be that Vanguard will save money on the move, but it isn't going to make them friends among the people who work for them in Pennsylvania, nor among local politicians. Also, I should note that beginning next year, Vanguard will do less mailing in general because of new SEC rules that will allow them to stop mailing hard-copy semi-annual and annual reports unless you specifically ask for them. Whether the Texas operations will handle outgoing mail as well as incoming mail remains to be seen. Our Model Portfolios are showing okay returns for the year through Wednesday. The Growth Model is off 10.8%, the Growth Index Model is down 10.1%, the Conservative Growth Model has fallen 7.9%, and finally the Income Model is off 5.2%. This compares to a 9.3% loss for Total Stock Market Index (VTSAX), a 17.0% decline for Total International Stock Index (VTIAX) and a 5.2% gain for Total Bond Market Index (VBTLX). Vanguard's most aggressive multi-index fund, Target Retirement 2065 (VLXVX), is down 10.7% for the year, and its most conservative, Target Retirement Income (VTINX), is down just 1.5% for the year. Until next week, this is Dan Wiener wishing you a safe, sound and prosperous investment future.  Like Dan and Jeff on Facebook
| 
Comments
Post a Comment