Tech Cracked the Code for VHCOX in YTD 2016



Performance evaluation of the Vanguard Capital Opportunity Fund

The Vanguard Capital Opportunity Fund – Investor Shares’s (VHCOX) fortunes have turned around from our last review, published three months ago. The fund, which was a below-average performer at the time, finds itself in the top three for the YTD 2016 period through August 26.

Across the periods shown in the graph below, VHCOX is among the top three in its peer group of 12 funds. We have 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 has contributed to this improved performance by the fund so far this year.

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Contribution to returns

Almost all of the gains of the VHCOX in YTD 2016 can be attributed to its stock picks from the information technology sector. NVIDIA (NVDA) has been the star performer from the sector and has far outperformed all other positive contributors, including Texas Instruments (TXN), NetApp (NTAP), Twitter (TWTR), and Corning (GLW). The sector has its share of negative contributors, such as Nuance Communications (NUAN) and BlackBerry (BBRY), but their dent is almost negligible.

The telecom services and consumer discretionary sectors are quite close to each other in terms of positive contributions to the fund. AT&T (T) has solely powered the telecom services sector, while DreamWorks Animation SKG (DWA), TJX Companies (TJX), and CarMax (KMX) have helped consumer discretionary sector stay in the black. Royal Caribbean Cruises (RCL) and Carnival (CCL) have weighed on the sector, however.

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Industrials have hurt VHCOX the most in YTD 2016. Southwest Airlines  (LUV), Delta Air Lines (DAL), JetBlue Airways (JBLU), and United Continental Holdings (UAL) have also hurt the sector. However, some of the drag from negative contributors has been reduced by FedEx (FDX), Jacobs Engineering Group (JEC), and Ritchie Bros. Auctioneers (RBA), among others.

Investor takeaways

The Vanguard Capital Opportunity Fund – Investor Shares (VHCOX) has been able to improve its performance tremendously on the back of tech stocks. The healthcare sector—the biggest invested sector in the fund—has been almost inconsequential to its return performance. However, this is better than being a negative contributor, the way the sector has been for several of the fund’s peers.

Existing investors may want to consider staying put with their investments, given the fund’s long-term focus as shown by its low portfolio turnover.

In the next article, we’ll look at the JPMorgan Growth Advantage Fund – Class A (VHIAX).


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