Home Adviser Fund Update New International REIT Fund for Vanguard Published November 12, 2010 Vanguard Ventures Abroad On November 1st, Vanguard opened its Global ex-U.S. REIT Index fund and ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., which invest in REITs (real estate investment trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process.) and REOCs (real estate operating companies) in developed and emerging markets countries around the globe (as the name would suggest, it excludes domestic REITs and REOCs). The fund is an intriguing expansion of Vanguard’s sector fund offerings, and could pave the way for more non-U.S. sector ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index. down the road. However, our analysis of the fund’s underlying benchmark, the S&P Global ex-U.S. Property Index, revealed that the global fund has experienced significantly more volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. than the U.S.-only REIT Index fund currently in Vanguard’s stable, while also underperforming over the last 16 years for which data was available. Our feeling is that Global ex-U.S. REIT’s best use will be to add diversity to a domestic REIT investment, but we’d be hesitant to recommend the fund to a majority of investors. The fund’s investor share class has a $3,000 minimum initial investment, a 0.50% expense ratio and charges 0.25% front- and back-end loads. The ETF class has a 0.35% expense ratio and will also cost brokerage fees, making it the better option for most cost-conscious investors. Tech Winter Warmer As the calendar flips over from October to November, the football season is in full swing and the days become shorter and colder. At Adviser Investments, we’ve developed investment strategies to see our clients through all seasons, but at this time of year we traditionally take note of an annual trend we call Tech Winter. We are nearly two weeks into Tech Winter, which takes its name from the four-month period of cold weather outperformance we’ve observed in tech stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. over the past 25 years, annually stretching from November through February. While it may seem strange that tech stocks follow a seasonal pattern (and that there could be any pattern at all in the volatile markets we’ve experienced over the last few years), there are actually three main factors we’ve identified that we believe lead to their four-month historical outperformance year after year. The first has to do with fourth quarter spending by corporations. Many information technology managers will have held back in using up their entire budgets in case of an emergency or to spend on some new tech innovation or product that allows the company to stay competitive. Because of the likelihood that budgets will be cut from year to year if they aren’t fully spent, managers feel increased pressure to empty their accounts towards the end of the year. This sales surge is duly noted and the tech stocks that benefit from this spending rise on expectations of higher earnings. A second contributor is Europe. European purchasers account for a significant percentage of U.S. technology orders, and during the fourth quarter they do an increased amount of buying. The reason for increased spending in these final months can be partly attributed to lengthy European summer vacations—orders drop during the summer as workers go on holiday. When vacations end, orders start rising in the fall and through the winter, often hitting a peak in the last few months of the year. A final catalyst for Tech Winter may be the bargains hardware companies create to sell off existing inventories as they begin readying for new product launches. This affords corporate purchasers an opportunity to acquire the cheap, well-tested products still sitting on manufacturers’ shelves. Tech Winter comes to a close as technology companies rebuild their inventories at the start of the new year and a new buying cycle begins. When this happens, tech stocks don’t necessarily return less, but they do become less predictable in their behavior, not following the historical pattern typically seen between November and February. Stay Toasty This Tech Winter We do not suggest making dramatic changes to your portfolio just in an attempt to benefit from Tech Winter. While the evidence overwhelmingly shows that the trend exists (see the charts showing average performance for tech-heavy Fidelity and Vanguard funds from November to February below), year-to-year results can swing unpredictably, and not all funds with heavy tech weightings are worthy of your investment. That said, we think one should have at least a market weighting in tech stocks through the four months of Tech Winter. We recommend sticking with a disciplined long-term investment strategy and funds that can provide you with outperformance throughout all market cycles. Our clients have benefited in the past from positions in tech-heavy funds like Vanguard’s Capital Opportunity, PRIMECAP, PRIMECAP Core (and the independently-run PRIMECAP Odyssey funds we’ve increasingly been favoring over the original Vanguard offerings) and Growth Index, as well as Fidelity’s Contrafund and Magellan. To the extent the Tech Winter trend repeats itself over the next four months, funds like these should perform favorably. We think that this Tech Winter should follow the historical trend, as the tech sector will likely benefit from the incremental improvements we’ve seen in the economy this year. We see no reason for this tech advance to slow as we head into 2011. About Adviser Investments Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFs, fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the fifth consecutive year, Adviser Investments was named to Barron’s list of the top 100 independent financial advisers nationwide and its list of the top advisory firms in Massachusetts in 2017. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015 and 2016. For more information, please visit www.adviserinvestments.com or call 800-492-6868. Disclaimer: This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. The Barron’s rankings consider factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. This award does not consider client experience and is not indicative of future performance. Editors at the Financial Times bestowed “elite” status on 300 firms in the U.S., as determined by assets under management, asset growth, longevity, compliance record, industry certifications and online accessibility. © 2018 Adviser Investments, LLC. All Rights Reserved.