Commentary

Earlier this year, Vanguard closed Vanguard Primecap Core to new investors, shutting what had been the only avenue left to invest with the redoubtable subadvisors from Primecap Management Company directly through Vanguard. So, where's a contrarian growth investor to go now? What other open actively managed funds at Vanguard or elsewhere follow a similar strategy of trying to buy and hold fundamentally solid growth companies when they are out of favor or attractively priced?

You're No Primecap
At Vanguard, the choices are somewhat limited. The family recently transformed Vanguard Growth Equity from a fast-trading, momentum-chasing aggressive growth fund into a lower-turnover offering that leans more on classic core growth stocks. The new subadvisors--Jennison Associates and Baillie Gifford--are experienced and successful in their own rights, but it's clear this fund is not what it used to be. Ultimately that may not be a bad thing. The more judicious approaches of Kathleen McCarragher of Jennison and Mick Brewis of Baillie Gifford will make this fund easier to own than it was when Turner was at the helm. It's not yet clear, though, if the combination will be as fruitful as Primecap. As I've written before, it's also disconcerting how Vanguard dumped former U.S. Growth manager Turner Investment Partners just before the market began to favor its aggressive style.

There's Vanguard US Growth, whose subadvisors, AllianceBernstein and William Blair, both purport to invest in very large firms with competitive advantages and unappreciated growth opportunities. It has staged a comeback recently, but I'd still like to see a longer track record of success at this fund, which has seen its share of ups and downs and manager changes over the past decade, before giving it an unqualified endorsement.

Perhaps the most proven remaining actively managed Vanguard growth fund is Vanguard Morgan Growth. The fund has multiple subadvisors, but Wellington Management's Paul Marrkand pulls the most weight. The portfolio has lots of exposure to stocks with wide moats, or competitive advantages, and owns more mid- and small-cap stocks than the typical large growth fund. It's a combination of solid, but not necessarily outstanding, managers that should do well over time--but it's no Primecap.

Straight to the Source
The best way to replace Primecap Core is probably to go to Primecap itself. You can buy its own Odyssey funds: Primecap Odyssey Aggressive Growth, Primecap Odyssey Growth, and Primecap Odyssey Stock. Odyssey Stock looks most like Vanguard Primecap Core. It follows the same tried-and-true Primecap approach, looking for stocks that look temporarily cheap relative to their growth potential and hanging on to them for the long term. Like Primecap Core, Odyssey Stock also is slightly less growth oriented, with less money in information technology stocks and a portfolio with slightly lower average historical growth rates than other Primecap-run funds.

Odyssey Aggressive Growth is a small- and mid-cap leaning fund that is most like Vanguard Capital Opportunity before asset growth caused it to migrate toward large-cap stocks; and Odyssey Growth resembles the current Capital Opportunity. You have to go directly to Primecap or to another brokerage, such as Charles Schwab, to buy the Odyssey funds, which are a bit more expensive than their Vanguard counterparts but still are good deals.

Outsourcing
Funds from other families that might fit the bill include T. Rowe Price New America Growth, run by Joe Milano; and Selected Special Shares. If you invest with a financial advisor who uses load funds, the venerable American Funds Growth Fund of America or Selected Special's clone Davis Opportunity are strong candidates.

Milano isn't afraid to look in non-traditional areas for unappreciated growth stocks and usually puts together portfolios that are anything but benchmark clones, which is one of the keys to beating the indexes. Growth Fund of America has enduring advantages that help it overcome its gargantuan asset base, particularly a deep and seasoned pool of managers, a valuation-conscious approach, and a low expense ratio. The analysts that support redoubtable managers Chris Davis and Ken Feinberg on large-cap blend standouts Selected American Shares and Davis New York Venture run Selected Special and Davis Opportunity. With Davis' oversight, the analysts are allowed to range over market cap, sector, region, and style boundaries for ideas. The result is an eclectic portfolio that is more willing to own growth stocks than its advisors' larger funds. The funds also got a substantial fee cut this past summer.

Dan Culloton has a position in the following securities mentioned above: POAGX