Category: Fund vs Fund

At the beginning of 2014, I was looking into other strategies used by investors seeking financial independence. One of the strategies I came across was the “Dogs of the Dow.” In a nutshell, this strategy is to invest in the 10 highest yielding blue chip stocks out of the 30 that make up the Dow Jones Industrial Average. The idea being, that companies of this caliber should only have a high yield if they are significantly under priced. So around January 7th, I decided to make a google portfolio to track how I would do if I invested roughly $1000 into each company.

At the beginning of this year, the Dogs of the Dow list included T, VZ, MRK, INTC, PFE, MCD, GE, CVX, CSCO, and MSFT. In the interest of full disclosure, I’ve owned or still own positions in all but 2 of these companies. So far this year (not much left). Someone who invested in these companies would not have had bad returns. They would have seen capital gains to the tune of 11%, the bulk of which was from MSFT, MRK, INTC, and CSCO. Additionally, someone with an evenly distributed portfolio of $10,000 would have earned over $310 in dividends which works out to net gains of about 14-15%. For reference, the S&P 500 has had a YTD return of around 11% and my personal portfolio has had about 14%.

So, based on the past year, someone who doesn’t enjoy screening stocks and just wants to pick from a small list of quality dividend paying companies would have had some solid returns going with the dogs. I don’t recommend blindly trusting a list of companies that anyone gives you. How someone else evaluates whether a stock is a good buy or not may not properly align with your beliefs. However, considering the 2 companies on the list that I have not owned in the last year were 2 of the bigger winners from the list, I have to admit that the strategy seems legit.

What’s your take on the Dogs of the Dow?

Somehow, the time of the month for this exercise always sneaks up on me. We’re now looking at the returns after 4 months.

The purpose of this exercise is to compare a focused approach to investing in quality dividend paying companies to using a fund of cherry picked stocks selected by experts. At the time I started this comparison, Kfund1 was composed of my personal holdings in MCD, MSFT, MRK, WMT, JNJ, and LMT, all of which are also part of the Vanguard Dividend Growth Fund (VDIGX). KFund2 was composed of my personal holdings in PEP, PG, WMT, KO, XOM, CVX, MCD, and MMM, all of which are also part of the Vanguard Dividend Appreciation Index Fund (VDAIX).

Below are the 2 Vanguard dividend funds I have and the change in value they have seen in the past 3 months.

VDIGX
up 6.40% (last month 5.78%)

VDAIX
up 6.75% (last month 6.17%)

Gains seem to have slowed down a tad, but what’s important to note here is that the returns are still up from last month.

Now let’s see how the individual companies that I own did in that time.

KFund1
up 6.66% (last month 7.20%)

KFund2
up 7.69% (last month 8.86%)

So my individual holdings actually went down in value compared to last month, which is unfortunate. However, if we’re still just comparing returns, the individual holdings are still ahead. These results do not surprise me as funds are intended to minimize risk. The asset management probably attributed to the continued gains during a down month, but at the cost of overall high-end returns. Like Warren Buffet, I consider myself an optimist when it comes to American business. While we all like to avoid losses, in the long run the market will continue to rise. This is why avoiding risk is not a priority for me while investing in big established businesses with proven performance and a track record of continuously rewarding shareholders.

One month ago today, I started my new job. So as you can imagine, I didn’t manage to get around to comparing the funds. However, this will be the 3rd month I’m comparing, which is a substantial benchmark for comparison. This means, I will have 1 quarter’s worth of dividends contributing to the returns of these investments.

The purpose of this exercise is to compare a focused approach to investing in quality dividend paying companies to using a fund of cherry picked stocks selected by experts. At the time I started this comparison, Kfund1 was composed of my personal holdings in MCD, MSFT, MRK, WMT, JNJ, and LMT, all of which are also part of the Vanguard Dividend Growth Fund (VDIGX). KFund2 was composed of my personal holdings in PEP, PG, WMT, KO, XOM, CVX, MCD, and MMM, all of which are also part of the Vanguard Dividend Appreciation Index Fund (VDAIX).

Below are the 2 Vanguard dividend funds I have and the change in value they have seen in the past 3 months.

VDIGX
up 5.78%

VDAIX
up 6.17%

Not too shabby. I don’t like comparing results to major indexes, because major indexes don’t reflect the cost of a Doritos Locos Taco from Taco Bell (Yes, I eat these every week). A 10% yearly return is far better than you see in any savings account or treasury bond these days. With over 5% in 1 quarter, breaking 10% for the year seems like a low ball goal.

Now let’s see how the individual companies that I own did in that time.

KFund1
up 7.20%

KFund2
up 8.86%

Unlike my comparison 2 months ago, My investments actually significantly outperformed the funds. I think a big part of this success is due to JNJ, MCD, and MMM, each of which have seen at least 7% gains in the last 3 months.

I’d love to continue reporting on this comparison, but with the house hunt accelerating, I fear I may need to sell some of these positions to make the down payment. We’ll see though. Stay tuned.

Last month I decided to compare the results of my ROTH IRA Vanguard funds with my individual positions in the top companies that constitute those funds. I now have a full month of info to work from, so I’ll share the results with you now. Below are the 2 Vanguard dividend funds I have and the change in value they have seen in 1 month.

VDIGX
up 3.26%

VDAIX
up 3.36%

Pretty good right? I dare you to find that kind of return on a savings account with a bank for a 1 month period. The expense ratios on these funds are relatively low too. (0.2% and 0.29%)

Now let’s see how the individual companies that I own did in that time.

KFund1
up 2.29%

KFund2
up 2.44%

Still decent, but certainly not as impressive as the funds. Keep in mind that to give the individual holdings a fair shot, we should be analyzing the change over at least a 3 month cycle to account for the varried dividend pay dates.

There was a time when I thought that saving money in your low interest bank account was a retirement strategy, and that was back when banks would give you almost a whole 1% per year. This is why I think it’s so important that people learn the ways their money can be put to work through investments. I didn’t know better, and I’m sure there are hundreds of thousands of young people today that don’t know any better either.

I found a fun article the other day about Warren Buffett. Apparently, he made a bet with Protege, a hedge fund management firm in New York, back in 2008 that over 10 years he could outperform their best funds by just investing in a low-cost index fund that follows the S&P 500, the Vanguard 500 Index Fund Admiral Shares (VFIAX). Buffett is wagering $320,000 in Treasury Bonds that they hedge funds are not worth the fees. After 6 years, the VFIAX is up 43.8% and the hedge funds are only up about 12.5% after fees. (Source)

I thought it might be fun to track something similar. I am invested in 2 dividend growth funds with Vanguard. I decided to look at the top holdings for each and noticed that I owned positions in my taxable account for about half of them. So I thought it might be fun to track how the funds perform compared to the underlying securities I am invested in elsewhere.

The first of the funds is the Vanguard Dividend Growth Fund (VDIGX). At the time of writing this, the stocks I own in the top 10 holdings are as follows:
MCD, MSFT, MRK, WMT, JNJ, LMT
Henceforth these will be tracked as KFund1

The second fund is the Vanguard Dividend Appreciation Index Fund (VDAIX). At the time of writing this, the stocks I own in the top 10 holdings are as follows:
PEP, PG, WMT, KO, XOM, CVX, MCD, MMM
Henceforth these will be tracked as KFund2

It got a little complicated since I own KO in both my joint account, which I track on this blog, and my individual account. I decided to just use the position in my Joint Account for tracking. Since the totals for the individual investments and the investments in the funds are completely different, I’m just going to be reporting the percentage changes each month. There’s no point in sharing the actual balances publicly since what matters is the growth, I’ll be tracking the cost basis offline.

I will have an update on the value changes next month. In all cases, dividends will be automatically reinvested.