WEEKLY BRIEF | Flagship Is Back

Hello, and welcome to the IVA Weekly Brief for Wednesday, October 21.

There are no changes recommended for any of our Portfolios.

Welcome Back, Flagship

Flagship status at Vanguard means something again.

Years ago, Flagship came with better access to funds and services, plus more support. Those perks eroded to the point that IVA readers regularly asked me what Flagship still got them.

As CEO Salim Ramji promised in his annual letter, Vanguard has rebuilt the tier for clients with $1 million to $10 million in qualifying assets. (Above $10 million, Vanguard may invite you into its Wealth Management service.) Last week, the firm emailed clients introducing “the next level of service.”

You can find the full list of benefits on Vanguard’s Flagship page. Four of them are the most important to most investors:

Access to a financial consultant. That isn’t an industry-standard title. Vanguard says these consultants offer guidance on “Vanguard products and services,” which sounds closer to a product specialist than a financial adviser. I’ve asked Vanguard for details and will report back.

Access to a dedicated phone line: 800-551-9996.

No account service fees, even if Vanguard is still mailing your statements.

A higher yield on Cash Plus Account. On October 15, two weeks later than I expected, Vanguard split the cash program into two tiers: Cash Plus at 3.50% and Cash Plus Enhanced at 3.65%. Flagship clients earn that enhanced yield, which is a nice bump but still trails Federal Money Market (VMFXX) at 3.83%. So I wouldn’t rework the way you manage your cash over it.

Flagship also includes better margin rates, access to Vanguard’s Fully Paid Lending program, priority chat, trust services, reimbursement of transfer fees charged by other firms and a 25% discount on TurboTax.

Vanguard has also made Flagship easier to qualify for. The $1 million threshold hasn’t changed, but Vanguard now counts all the assets in your Vanguard accounts, not just the dollars in Vanguard funds.

Yes, Vanguard wants more of your wallet under its roof. Still, a Flagship service tier that delivers tangible benefits is a welcome, if overdue, change.

Growthier Target Retirement…For Some

This morning, Vanguard announced a new Target Retirement Growth Trust series. Think of it as Target Retirement with more stock at every stage.

The Growth Trusts start at 95% stocks and hold there until age 45. They drop to 60% at 65 and settle at 50% at 72. The standard Target Retirement funds start at 90%, fall to about 50% at 65 and settle at 30% at 72. The biggest gap comes after retirement, when the Growth Trusts keep a much larger stake in stocks. Otherwise, the two series use the same underlying index funds.

The catch? These are collective trusts, not mutual funds. You’ll only be able to invest in them if your employer adds them to your 401(k) or another workplace plan. You can’t buy them in an IRA or a taxable account.

Vanguard expects to launch the Growth Trusts later this year. The Target Retirement Lifetime Income Trusts Vanguard announced nearly a year ago could arrive at the same time.

War Hasn’t Paid for Defense Stocks

You might expect war to be good for defense stocks. Since the Iran war began, it hasn’t been.

Vanguard’s 500 ETF (VOO) has gained 13.0% since the war started at the end of February. Over the same stretch, iShares U.S. Aerospace & Defense ETF (ITA) is down 15.2% and SPDR S&P Aerospace & Defense ETF (XAR) is down 21.4%. Spencer Jakab of The Wall Street Journal made this point with a sharp chart in yesterday’s markets newsletter, and I’ve recreated it below using ETFs.

Of course, Vanguard doesn’t have a defense ETF—the fund giant doesn’t slice the U.S. stock market down to the industry level, only the sector level. However, nearly 23% of Industrial ETF’s (VIS) portfolio is in aerospace and defense stocks. Since war broke out, Industrial ETF is off 6.0%—not as bad as the iShares and SPDR ETFs, but still 19 percentage points behind the broad stock market.

It’s the latest reminder that trading on headlines rarely pays.

Our Portfolios

Our Portfolios are showing solid gains for the year through Tuesday. The Aggressive Portfolio is up 13.1%, the Aggressive ETF Portfolio is up 11.6%, the Growth Portfolio is up 12.1%, the Moderate Portfolio is up 11.2% and the Conservative Portfolio is up 6.9%.

This compares to a 13.4% return for Total Stock Market Index (VTSAX), an 11.7% gain for Total International Stock Index (VTIAX), and a 1.6% decline for Total Bond Market Index (VBTLX). Vanguard’s most aggressive multi-index fund, Target Retirement 2070 (VSNVX), is up 11.4% for the year, and its most conservative, LifeStrategy 20/80 (VASIX), is up 1.5%.

IVA Research

Yesterday, I asked whether Vanguard’s rebuilt board is eating its own cooking. The longest-serving trustees are heavily invested. Most newcomers, not so much.

Until my next IVA Weekly Brief, have a safe, sound and prosperous investment future.