Not a Great 1Q16 for VPMCX: Should You Worry?



Performance evaluation of the Vanguard PRIMECAP Fund

The Vanguard PRIMECAP Fund Investor Shares (VPMCX) fell 2.0% in 1Q16, but it was still an above average performer among the 12 funds chosen for this review. VPMCX fell 1.5% in the one-year period ended March 2016, ranking it sixth among its peers.

Meanwhile, from December’s end 2015 until April 20, 2016, the fund rose 2.5%. We’ve graphed its performance against two ETFs: the iShares S&P 500 Growth ETF (IVW) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what contributed to the fund’s above-average performance in 1Q16.

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Portfolio composition and contribution to returns

The healthcare sector contributed the most to VPMCX’s negative returns in 1Q16. Biogen (BIIB) led the negative contributors from the sector, which included Eli Lilly (LLY) and Amgen (AMGN), among others. Johnson & Johnson (JNJ) was a positive contributor.

Financials was the second-largest negative contributor to VPMCX’s 1Q16 returns. Charles Schwab (SCHW) was miles ahead in terms of negative contribution compared to the distant second Wells Fargo (WFC). However, some of the drag was reduced by positive a contribution from Marsh & McLennan Companies (MMC).

The industrials sector helped to reduce a sizable drag from VPMCX’s returns, contributing positively in 1Q16. FedEx (FDX) was primarily responsible for the sector’s strong performance. It had support from stocks such as Southwest Airlines (LUV), among others.

Information technology was the second-largest positive contributing sector. It was led by Texas Instruments (TXN) with support from Hewlett-Packard Enterprise (HPE). However, Micron Technology (MU) contributed a sizable drag.

Comparison with IVW

The iShares S&P 500 Growth ETF (IVW) did much better than VPMCX in 1Q16 in terms of total returns. Though VPMCX’s stock picks from the consumer discretionary and industrials sectors did better than those in IVW, IVW did better in all other sectors.

Investor takeaway

VPMCX may not have done well compared to some of its peers and ETFs in 1Q16, but this doesn’t make the offering weak. Its low portfolio turnover is a testament to the fact that its fund managers have conviction in its stocks.

VPMCX is closed to new investors. However, those already invested will likely want to remain invested, especially in a long-term investment horizon scenario.

In the last part of this series, we’ll take a look at the overall picture that emerges from this analysis.


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