A rose by any other name …  

Five years ago, Vanguard decided it had had enough of its gold fund. Precious Metals & Mining, which had previously been known as Precious Metals and, before that, Gold & Precious Metals, had tried everyone’s patience—Vanguard’s, its shareholders, its managers—and needed to be put to rest.

But rather than shutter the fund, Vanguard hit the reset button, renaming it again and giving it a new portfolio manager and strategy.

In the past, Dan and I were critical of Global Capital Cycles (VGPMX)—using words like “loser” and “dog.” Given that the new strategy still involved owning a boatload of mining stocks, the rebooted fund was guilty until proven innocent.

As it's been five years since Vanguard hit the reset button, let’s review the case for and against Global Capital Cycles. I’m still not convinced, but I’ll try to give both sides a fair look.

Setting the Stage

Before jumping straight into the arguments, let’s level set and start at the beginning.

While Precious Metals & Mining had its moments of brilliance, it was a long-term loser. From its May 1984 inception through the end of June 2018, the fund compounded at a 4.1% rate. That’s miles behind 500 Index (VFIAX), which grew at an 11.3% annual pace.

To put some concrete numbers on it: If you put $100,000 into Precious Metals and Mining at the fund’s inception, you would have around $400,000 at the end of June 2018. A similar investment in 500 Index would’ve grown to about $3.8 million.

Those high-level return numbers mask some of the most horrific losses any Vanguard fund has ever saddled its shareholders with. For example, between May 2008 and January 2016, the fund lost 76.4%.

As I said, it was a long-term loser. No wonder it went through a makeover.

When Vanguard first announced it would revamp the fund in 2018, it said Global Capital Cycles would serve as a complement to a core global equity allocation that “exhibits lower correlations to the broad equity markets.”

The concept was that the fund would look to capitalize on the cyclical patterns in “commodity-oriented industries, such as the materials and natural resource sectors.” And it would invest in telecom and utility companies with “irreplaceable or scarce infrastructure assets.” However, precious metals and mining stocks would still be a “meaningful” part of the portfolio.

In short, the precious metals and mining fund was recast as a global stock fund with a heavy value tilt.

Vanguard CEO Tim Buckley said the new iteration of the fund would “improve investor outcomes,” which is hardly a big lift given how poorly the previous incarnations had performed.

A Better Global Fund?

The best case for Global Capital Cycles is to view it as a value-leaning global stock fund. Through that lens, the fund has done alright in its first five years.

While its correlation with Total World Stock Index (VTWAX) has been fairly high, at 0.88, if we zoom out from the monthly stats, Global Capital Cycles’ charms come into better focus.

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