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October 14, 2004 at 08:00 PM
Oct. 13, 2004 — Despite the increasing popularity of relative value investing, Vanguard Selected Value (VASVX) hews to a traditional value approach. Rather than invest in companies just because their stocks are cheap, lead manager Jim Barrow and co-manager Mark Giambrone look for strong firms that are under pressure but that they believe will be profitable again. In addition to this charge, Barrow also manages a portion of Vanguard Windsor II/Inv (VWNFX).
With a classic value approach, the fund’s team aims for low turnover and moderate volatility. The fund’s annual turnover is about 40%, versus 74% for the average mid-cap value fund. In addition, the portfolio is slightly less volatile than its peers, based on three-year standard deviation. Standard & Poor’s characterizes the fund’s volatility as moderate.
Barrow and Giambrone avoid technology stocks, generally focusing on financial services, utilities, and cyclicals, such as energy. Currently, Vanguard Selected Value’s largest sectors include financial services, consumer staples, consumer discretionary, and utilities. While the fund doesn’t have a maximum weighting for a sector, it generally avoids sector stakes higher than about 30%. Though Barrow and Giambrone consider sector weightings, this is not a top-down portfolio.
The fund focuses on mid-cap stocks, and has a median market capitalization of $4.2 billion. Barrow and Giambrone don’t automatically sell a holding when it reaches a certain cap size, but they would cut a position when they feel it has reached its maximum potential. Consistent with Vanguard’s low fees, the fund’s expense ratio is 0.78%, versus 1.43% for its peers.
Selected Value’s benchmark is the Russell Midcap Value index, although “it’s tough to benchmark a fund that is this concentrated,” notes Joe Brennan, a principal in Vanguard Group’s portfolio review area. The $1.8-billion fund generally holds 40 to 50 stocks, and had 38 positions at the end of August. Foreign equities made up 5.7% of the portfolio.
The fund has performed competitively versus its benchmark and its mid-cap value fund peers. For the five-year period through August, Selected Value rose 11.1%, on average, versus a 9.7% gain for the Russell Midcap Value index, and a 9.8% rise for its peers. This year through September, the fund was up 7.6%, versus a gain of 5.9% for its peers.
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Oct. 13, 2004 — Despite the increasing popularity of relative value investing, Vanguard Selected Value (VASVX) hews to a traditional value approach. Rather than invest in companies just because their stocks are cheap, lead manager Jim Barrow and co-manager Mark Giambrone look for strong firms that are under pressure but that they believe will be profitable again. In addition to this charge, Barrow also manages a portion of Vanguard Windsor II/Inv (VWNFX).
