Fund managers see bargains amid uncertainty

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 Note: To view the reports mentioned in this article, you'll need to have Adobe Reader installed on your computer. The news headlines, especially about Europe, continue to be worrisome. But advisors who manage Vanguard mutual funds see potential opportunities amid the gloom. Vanguard's Equity Investment Group notes that, by at least one measure, stocks haven't been such a bargain since bell-bottom pants were the latest fashion. That assessment was among the insights in the most recently published Vanguard fund reports, which cover the six months that ended March 31, 2012. "A look at the relative valuations of U.S. stocks and bonds, measured by comparing the earnings yields of stocks with the coupon yields of 10-year U.S. Treasuries, indicates a level of attractiveness in the stock market that has Michael Kors Shoulder Bags not been observed since the early 1970s," Equity Investment Group advisors wrote in their report to Vanguard U.S. Value Fund shareholders.* Earnings yield,a metric used by some investors, is a company's earnings per share for the most recent 12-month period divided by that company's stock price. Edinburgh-based Baillie Gifford, co-manager of Vanguard Global Equity Fund, sees opportunities in stocks outside of the United States. "We believe this is an excellent time to be a global stock picker with an eye for companies that have a combination of strong balance sheets, innovative employees, and superior products or inventive business models," the advisor wrote. Challenges for investors persist While the advisors cited reasons for optimism, they also acknowledged that investors can expect to see continued market volatility. Frontier Capital Management Co. LLC, co-manager of Vanguard Morgan™ Growth Fund, noted that factors that continue to threaten the markets include "a fragile Europe, high oil prices, and slowing growth in emerging markets." Marathon Asset Management, co-manager of the Global Equity Fund, observed that it will be a struggle or companies to improve their bottom lines in the face of lackluster economic growth. "Unfortunately, given that company profit margins are at all-time highs and that they tend to revert toward the mean, the market may be out of juice from this source," the advisor wrote. "From here on, the winners will have to be firms that can grow in a mediocre environment or those whose profit margins are still depressed (the financial and housing sectors are good examples of the latter)." Maintaining balance and diversification Investors have been drawn to dividend-paying stocks as an alternative to low-yielding bonds. But Vanguard Chairman and CEO Bill McNabb cautioned investors not to get carried away in their enthusiasm for high-yielding stocks. A wiser course, he suggested, is to keep sight of the enduring benefits of balance and diversification. "Dividend-oriented funds can play a useful role in a portfolio, but it's unwise to let them dominate your holdings," Mr. McNabb wrote in his letter to Vanguard Equity Income Fund shareholders. "Because these funds tend to concentrate michael kors their assets in selected sectors, they aren't as diversified as the broad stock market," he wrote. "A Vanguard research paper, Asset allocation in a low-yield and volatile environment, explains that it's important for investors to consider the total return of their portfolios, rather than simply focus on potential income. We believe that the best way to remain focused on this broader set of risk and return tradeoffs is to create a diversified and balanced portfolio that includes a mix of stock, bond, and money market funds tailored to your unique goals, time horizon, and risk tolerance." PRIMECAP co-founder leaves a legacy of excellence Mr. McNabb paid tribute to the late Howard Schow in letters to shareholders of Vanguard PRIMECAP Fund, Vanguard PRIMECAP Core Fund, and Vanguard Capital Opportunity Fund, all of which are under the stewardship of PRIMECAP Management Company. Mr. Schow, a co-founder of PRIMECAP Management Co., died in April at the age of 84. "Personally, I learned a great deal from Howard, and I will miss his perspective, his candor, and his balance of optimism and pragmatism," Mr. McNabb wrote. "Howard and his colleagues had the prescience to identify emerging opportunities in technology and health care, and the discipline to capitalize on those opportunities for the benefit of fund shareholders. His commitment to taking the long view set an example for all investors. "One of Howard's lasting accomplishments is the deep and talented team of portfolio managers he helped to build at PRIMECAP Management. His co-managers—Joel P. Fried, Theo A. Kolokotrones, Alfred W. Mordecai, Mitchell J. Milias, and M. Mohsin Ansari—have assumed michael kors sale responsibility for the portion of the assets Howard had managed. I am confident that they will continue to pursue the standards of excellence that PRIMECAP Management has become known for over the decades." *Earnings yield for the S&P 500 Index and coupon yield for 10-year U.S. Treasuries is as of December 31, 2011. Source: Vanguard. Other recently published fund reports: Vanguard Capital Value Fund Vanguard Growth Equity Fund Vanguard Growth and Income Fund Vanguard Strategic Equity Fund Vanguard Strategic Small-Cap Equity Vanguard Structured Broad Market Fund Vanguard Structured Large-Cap Equity Fund Vanguard Target Retirement 2010 Fund Vanguard Target Retirement 2015 Fund Vanguard Target Retirement 2020 Fund Vanguard Target Retirement 2025 Fund Vanguard Target Retirement 2030 Fund Vanguard Target Retirement 2035 Fund Vanguard Target Retirement 2040 Fund Vanguard Target Retirement 2045 Fund Vanguard Target Retirement 2050 Fund Vanguard Target Retirement 2055 Fund Vanguard Target Retirement 2060 Fund Vanguard Target Retirement Income Fund Vanguard Wellesley® Tiffany Watches Sale Online » 100 billion just in additional interest ... Income Fund Notes: All investments, including a portfolio's current and future holdings, are subject to risk. Foreign investing involves additional risks including currency fluctuations and political uncertainty. Stocks of companies in emerging markets are generally more risky than stocks of companies in developed countries. Diversification doesn't protect against a loss in a declining market or ensure a profit. Investments in bonds are subject to interest rate, credit, and inflation risk. Past performance is no guarantee of future results.