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Vanguard Capital Opportunity Fund good for long-term investors

The fund was up less than 2% in a recent 12-month period, but that doesn't erase excellent returns over the long haul.

November 20, 2011|By Andrew Leckey

Question: I'd like to know whether I should keep my shares in Vanguard Capital Opportunity Fund.

Answer: It is understandable that some longtime owners of this popular fund would become concerned.

Underperforming stocks of Research in Motion, maker of the BlackBerry, and chip maker Cree Inc. have lately held back overall results, a natural consequence of a contrarian growth approach that often includes volatile technology.

The Vanguard Capital Opportunity Fund was up less than 2% in a recent 12-month period to rank in the lower one-fifth of large growth funds.

That doesn't erase excellent returns over the long haul, and there is no need to panic. Its recent three-year annualized return of 19% ranked just outside the top third of its peers, and its 10-year annualized return of 6% ranked in the top 3%.

"While this fund is not doing great this year, a long-term investor can benefit from its strong performance," said David Kathman, mutual fund analyst with Morningstar Inc. "The team running it since 1998 has a fantastic record, and it has low turnover with very low expenses."

The team from Primecap Management Co. that runs the fund gives each of five managers a portion to handle independently. They prefer fast-growing stocks purchased when out of favor, a strategy that can sometimes involve heavy weightings in a specific sector.

Four of the managers have more than $1 million of their personal money invested in the fund, and one has between $50,000 and $100,000 invested, according to filings. That aligns their financial interests with those of shareholders.

Vanguard Capital Opportunity, which is closed to new investors, has a portfolio worth noting. Kathman pointed out that a similar fund, Primecap Odyssey Growth Fund (POGRX), remains open.

Top holdings recently included Biogen Idec Inc., Amgen Inc., Altera Corp., Monsanto Co., Eli Lilly & Co., Roche Holding, FedEx Corp., Symantec Corp., Medtronic Inc. and Novartis. It has a low annual expense ratio of 0.48%.

Important dates for dividends

Question: I am confused by the various dates given for stock dividend increases and payments. Can you explain?

Answer: Dividends become increasingly important in a volatile period when investors can't take price appreciation for granted.

"If a company announces a dividend increase, it has confidence that its earnings are going to be sufficient to pay that dividend and keep on paying it," said Kelley Wright, managing editor of the Investment Quality Trends newsletter in Carlsbad, Calif.

Here are the important dates for dividends:

Declaration date is the date on which the company announces publicly that it will pay a dividend.

Record date is the date on which the company checks its books to determine the shareholders of record who will receive the dividend.

Ex-dividend date is the date (after the record date) when anyone purchasing the stock will not be entitled to the dividend.

Payable date is the date that the company mails out the dividend to the holders of record.

"When a company has to reduce or eliminate its dividend, it is a bad sign that shows management lacks confidence about its earnings prospects," Wright said.

Mutual fund share classes

Question: What should an average investor know about mutual fund share classes?

Answer: Share classes represent various ways you pay the commissions and fees that can be charged at a fund. Besides fund performance, factors to consider are cost and how long you intend to be invested.

"Differences depend on access to the share class, how shares are acquired — such as from a broker, advisor or directly — and restrictions such as minimums and holding periods," said Marilyn Capelli Dimitroff, certified financial planner with Capelli Financial Services Inc.

According to the Securities and Exchange Commission, Class A shares may typically have a front-end sales load; Class B shares may have a contingent deferred sales load paid when redeeming shares and a 12b-1 annual marketing and distribution fee; and Class C shares may have a 12b-1 fee and a contingent or front-end sales load that is lower than that of the other classes.

Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com

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