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Vanguard active vs index funds

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  • Vanguard active vs index funds

    I found this article intriguing. Obviously the data is cherry picked, and past performance does not guarantee future outcomes. However, these funds seem to have flourished despite 2008. Is this a good argument to be open minded about these specific active funds?

  • #2
    No. Survivorship bias. Lucky funds survive. Bad funds shut down.


    • #3
      Is the manager risk and higher ERs worth it for these SPECIFIC funds? The manager seems to have proven his worth by helping the fund survive a major recession. Or, is the general consensus that he/she just got lucky?


      • #4
        My view is that it is too difficult to tell whether a manager is lucky or good for the average investor.  Even if a manager is better, there is also no reason to think that the manager will keep the secret information responsible for that manager's success a secret forever.  Any fund of size will leak information due to the number of people involved in managing a large fund.  Once the manager's secret sauce become widely known, the manager's edge goes away, and now you are left with market returns or worse and higher fees, so worse performance than a passive fund.


        • #5
          WCICON24 EarlyBird
          My take/experience on the article is from two perspectives:

          a. My wife through her retirement accounts had positions in Vanguard Wisdom (one of the funds named in the article) and Vanguard Dividend Growth.  Both performed fairly well in my opinion with less volatility relative to the Vanguard 500 Index (my wife is a bit more conservative by nature than I).  I would point out that low expense ratios provide an opportunity of potential 'active' outperformance.  Most fund companies expense ratios charge too much, significantly reducing or closing the window of 'active' outperformance.   The second and related part is the ability to have long-term 'active' outperformance.  Very few managers have this type of track record (Bill Miller comes to mind of 10 year plus outperformance).

          b. The writer appears to be focused upon income producing bonds/equity.  Though I am not adverse to an 'income' focus, the second post in the author's blog labeled '5 Bargin Funds with Safe 11% Yields' gives me pause.  Yield does not come without risk and labeling it as 'safe' is a too much salesmanship in my opinion.

          c.  I would label 'active' funds not as 'open mind' and more of skeptical starting point.  Long Term Outperformance, expense ratio, survivor ship bias, and what you are trying to accomplish within your portfolio, would all be the lenses through which to evaluate an 'active' fund.