The Vanguard PRIMECAP Fund Has a Drab Year: How Did It Place?



The Vanguard PRIMECAP Fund: Overview

The Vanguard PRIMECAP Fund – Investor Shares (VPMCX) is the third largest fund in this review by asset size. At the end of January 2016, it was managing assets worth $43.2 billion. As of December 2015, its assets were spread across 128 holdings and included stocks of Biogen (BIIB), Texas Instruments (TXN), Roche (RHHBY), Southwest Airlines (LUV), and FedEx (FDX). Its top ten holdings formed 44.3% of the fund’s December net assets.

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The Vanguard PRIMECAP Fund’s performance

From a purely NAV (net asset value) return standpoint, the VPMCX was an average performer for the one-year period ended February 12, 2016, standing sixth among the 12 funds of this review. 2015 was even worse for the fund as it ranked ninth in the peer group.

Other metrics

The VPMCX’s standard deviation, or the volatility of returns, in the one-year period ended February 12 was 17.9%. This was a higher than the S&P 500’s 16.4%, but lower than the peer group’s average of 18.6%. The fund witnessed lower volatility than several of its peers in 2015 as well.

The fund’s risk-adjusted returns, calculated by the Sharpe ratio, amounted to -0.55, worse than the S&P 500’s -0.47 for the one-year period ended February 12. For 2015, the fund’s risk-adjusted returns were poor, placing it tenth in the group of 12 funds.

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The information ratio, calculated with the S&P 500 as the benchmark, was -0.46 for the one-year period ended February 12. The information ratio shows the consistency of a fund manager along with measuring his ability to generate excess returns over a benchmark. We can’t evaluate a negative information ratio, though. For 2015, the fund’s information ratio placed it at nearly the bottom of the group, at 11th place among 12 funds.

A note to investors

2015 was utterly forgettable for the VPMCX. All of its metrics—the Sharpe ratio, the information ratio, and the alpha—placed it among the bottom three funds. Its alpha for the one-year period ended February 12, 2016, though negative, improved its standing to sixth. However, this is far from convincing. The fund is closed to new investors, so the analysis pertains only to existing investors. Investors would do well to evaluate the performance of the fund in the longer term and base their investment decision on that. The short-term metrics are not flattering. In the last article of this series, we’ll look at the overall picture that emerges from this analysis.


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