Vanguard manages the world’s first trillion-dollar fund—and it got there in part by looking out for the little guy through low-cost index funds. But lately, they’ve demonstrated a disturbing tendency to not sweat the small stuff. Case in point: Eight of their money market funds reported incorrect yield estimates to investors for nearly a year before the mistake was caught.
The erroneous estimates appeared on brokerage account statements for the eight funds from November 2019 to September 2020, according to a footnote in the October statement. The errors occurred only in estimates for funds held as a position in brokerage accounts.
The other affected funds are the state-specific California, New Jersey, New York and Pennsylvania Municipal Money Market funds, as well as Municipal Money Market and Treasury Money Market.
Vanguard hasn’t made a peep about what caused the error, though their spokesperson did note in a statement to Ignites that there was no impact to clients’ fund holdings, distributions or account balances. The incorrect figures appeared only on brokerage statements; the firm’s website continued to report accurate SEC yields.
That doesn’t mean the incorrect estimates were insignificant, however. Adviser Investments Chairman Dan Wiener, who helped bring the error to public attention, noted that, “In one minor example, Vanguard’s estimate of my expected year’s worth of income was more than 25 times higher than it would have been if they’d used the right number.”
In the same brokerage statement that disclosed the error, the firm also removed language stating that investors can request details on formulas used to calculate figures on statements. It’s safe to say that the number of investors eager to throw on their green eyeshades and dig into the nitty-gritty of statement formula estimates is, well, small. But the fact that Vanguard is no longer offering to share those details with its shareholder-owners seems like a worrying step toward obfuscation and away from clarity.
A Surge in Value?
The stock market’s post-election rally has some market observers asking (yet again): Is it finally, really, truly, time for value stocks to shine?
The debate between the advocates of growth stocks versus the champions of value stocks has been going on since the New York Stock Exchange was just a couple dozen guys hanging out under a buttonwood tree in downtown Manhattan.
But during the bull market that dominated the 2010s, it’s a debate the growth side has been winning, decisively. For seven out of the 10 years of that decade-long rise, growth outperformed value. And for most of this year, it seemed set to do the same.
Why? Well, first it may help to recap what differentiates growth stocks from value stocks.
The traditional notion of a growth stock is that of a young company whose balance sheet may not look especially bright today—indeed, they may even be losing money—but whose innovative product or business model is poised to enable them to massively increase their customer base and profits in the coming years. Amazon, which reported quarterly losses for nearly a decade on its way to becoming a trillion-dollar company, is a classic example.
Value stocks, in contrast, are those of mature companies whose days of explosive growth are long behind them, but which have other outstanding virtues—dominant market share, strong profit margins, economies of scale—that fickle Wall Street traders may insufficiently appreciate.
The high-flying tech stocks that have helped drive the overall market in recent years—Apple, Amazon, Google, Facebook, Netflix and Tesla, for example—are all growth stocks. Meanwhile sectors where value stocks predominate—industrials, consumer staples, health care—have received less attention during the slow-but-steady period of economic growth.
Could the recovery from the pandemic change that? Possibly. A report by Goldman Sachs in September predicted that value stocks could outperform once a COVID-19 vaccine is found, as some of the sectors most damaged by the abrupt shutdown of the economy rapidly returned to normal. And Monday’s announcement by Pfizer and BioNTech that their forthcoming coronavirus vaccine is 90% effective appears to have borne those predictions out, with the Dow Jones Industrial Average rising 800 points (2.9%) on the news, led by value stocks like banks, health care providers and airlines. So far in the third quarter, value stocks are outperforming growth:
Source: S&P Dow Jones Indices LLC.
Does this mean you should rush out to stock up on neglected value stocks? Not so fast. As our first chart above shows, value stocks and growth stocks have each taken their turns in the spotlight over the decades. And it is possible that this may be one of those inflection points. But while value stocks are poised to benefit from a return to economic normalcy in the coming months, it is less clear that the long-term trends that have been accelerated by the pandemic will continue to favor them disproportionately.
Election Analysis: Our Latest Podcasts
A winner has been declared in the 2020 election. But where do investors go from here?
In two timely episodes of The Adviser You Can Talk To Podcast, our expert analysts take us through current events and how they’re affecting the markets.
First, Dan Wiener and Jim Lowell discuss:
Market reaction to the election results
Avoiding the trap of short-termism
Economic difficulties that will confront the next term’s president
Protecting yourself without taking on too much risk in the process
Unhappy as it may make us, we are taking the political season’s record divisiveness in stride. For long-term investors, staying the course doesn’t mean staying still—it means staying disciplined, diversified and invested in managers who have the foresight to spot the opportunities that may be present in times of volatility.
And don’t forget, you can still access the replay of last week’s fourth-quarter webinar, Looking Beyond the Election to the Recovery’s Future, by clicking here.
Adviser Investments’ Market Takeaways
Calm and clarity have been sorely lacking when it comes to market news recently—that’s why we’re providing Today’s Market Takeaways, short videos in which a member of our investment team analyzes what the market is telling us.
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