The benefits of active-passive combinations
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The benefits of active-passive combinations
would you pick as your core holding ?
PRIMECAP VPMCX
PRIMECAP Core VPCCX and
Capital Opportunity VHCOX
PRIMECAP VPMCX
PRIMECAP Core VPCCX and
Capital Opportunity VHCOX
Last edited by n00b_to_investing on Tue Sep 24, 2013 9:00 am, edited 2 times in total.
- cheese_breath
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Re: Which Vanguard Active Fund ?
If you wanted a fund from among these choices Capital Opportunity VHCOX would have to be the one since the other two are closed to new investors.
But the real question is, why do you want an active fund?
But the real question is, why do you want an active fund?
The surest way to know the future is when it becomes the past.
Re: Which Vanguard Active Fund ?
VHCOX
Paul
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Which Vanguard Active Fund ?
in process of moving to a 3 fund portfolio. the interest is purely theoretical. I came across this paper at Vanguard https://institutional.vanguard.com/iwe/pdf/FASRBT.pdf
would Primecap ODYSSEY qualify as alternatives ?
would Primecap ODYSSEY qualify as alternatives ?
- 3CT_Paddler
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Re: Which Vanguard Active Fund ?
That paper seems to do a poor job of building a logical case for going 50/50 active vs passive.n00b_to_investing wrote:I came across this paper at Vanguard https://institutional.vanguard.com/iwe/pdf/FASRBT.pdf
???Under the right circumstances, active and passive components can
complement each other by moderating the swings between the extremes
of relative performance. Such a combined strategy can help avoid the
pangs of regret that your clients might otherwise experience when one
approach trumps the other.
- Aptenodytes
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Re: Which Vanguard Active Fund ?
I had not seen that paper before. I have to say it is one of the dumbest things I've ever read.n00b_to_investing wrote:in process of moving to a 3 fund portfolio. the interest is purely theoretical. I came across this paper at Vanguard https://institutional.vanguard.com/iwe/pdf/FASRBT.pdf
would Primecap ODYSSEY qualify as alternatives ?
The factual content of the paper is "Adding indexing to active portfolios can help temper risk." Well, duh. Adding indexing to ANYTHING will temper risk. Adding indexing to lighting your money on fire will temper risk.
The innuendo of the paper is "There is a strong argument in favor of combining the two approaches." Well, no. There's absolutely no evidence in the paper to support this. That's like saying "There is a strong argument in favor of investing some of your money in index funds and lighting the rest on fire." It is argument by innuendo and it is misleading and irresponsible.
To put it another way, the benefits of active-passive combination accrue only to people who are starting 100% active. For people in your case, from a starting position that is 100% passive, there is no tangible benefit to adding active funds.
The paper alludes to an intangible benefit, though they direct the message to portfolio advisers, not individual investors. The paper says
So if you think that you are the kind of person who is susceptible to becoming unstable if you read about active mutual funds outperforming your passive portfolio and taking self-destructive actions as a result, then maybe you should set aside a portion of your portfolio to some "hot" active fund. If this is the rationale for the strategy, however, note that it is completely speculative. The papers cites no evidence whatsoever that people who invest in this way are less likely to become unhinged than fully passive investors. My intuition is that they would be more likely to go full-Cramer, because their attention is going to be focused on the hot fund's performance and they will be likely to continually revisit their choice of that fund. Myself, for example, I have absolutely no clue what the hot mutual funds are -- I couldn't even hazard a guess what their returns or who markets them. I'm just not paying attention to that signal.Such a combined strategy can help avoid the pangs of regret that your clients might otherwise experience when one approach trumps the other.
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Re: The benefits of active-passive combinations
But VG promotes its actively managed funds.
http://wealthmanagement.com/mutual-fund ... frequently
https://personal.vanguard.com/pdf/s356.pdf
https://personal.vanguard.com/us/insigh ... nds-092013
http://www.cbsnews.com/8301-505123_162- ... t-indexes/
VG seems to encourage active funds for investors who are a long way from retirement.
http://wealthmanagement.com/mutual-fund ... frequently
https://personal.vanguard.com/pdf/s356.pdf
https://personal.vanguard.com/us/insigh ... nds-092013
http://www.cbsnews.com/8301-505123_162- ... t-indexes/
VG seems to encourage active funds for investors who are a long way from retirement.
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Re: The benefits of active-passive combinations
The key word is "promote"--it is to Vanguard's benefit to enroll customers in their active funds. Doesn't mean it's best for the investor.manwithnoname wrote:But VG promotes its actively managed funds.
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Re: The benefits of active-passive combinations
VG also promotes index funds. Does that mean that index funds are not best for investors?goodenoughinvestor wrote:The key word is "promote"--it is to Vanguard's benefit to enroll customers in their active funds. Doesn't mean it's best for the investor.manwithnoname wrote:But VG promotes its actively managed funds.
- Aptenodytes
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Re: The benefits of active-passive combinations
I just skimmed one of the linked papers. My take is that Vanguard is doing a good job at minimizing the potential harm to investors who choose their actively managed funds through a smart, disciplined strategy, but that it does not think they add value.goodenoughinvestor wrote:The key word is "promote"--it is to Vanguard's benefit to enroll customers in their active funds. Doesn't mean it's best for the investor.manwithnoname wrote:But VG promotes its actively managed funds.
The paper I read (https://personal.vanguard.com/pdf/s356.pdf) provided evidence that investors who invested in each of the company's 15 active funds between 1997-2012 would have done OK, 50 basis points of annualized returns ahead of the benchmarks. That's comforting to Vanguard management which I presume wants to minimize overall harm to its customers. But I found it unusable information from a personal perspective. Can you imagine a single investor on the planet who would invest in each of the active funds?
If Vanguard had the courage of its convictions and really believed the implication of this paper, it is clear that the overwhelming obligation would be to create a fund of funds consisting of a weighted average of shares in all the company's active funds. That's the only sure way to reap the 50 bp advantage. That they have not done so provides very strong evidence to me that they do not in fact believe these results. If they did believe them, and still refrain from creating this fund of funds, they are flushing value down the toilet. They are not value-flushers, so I can only conclude that they don't believe this stuff.
On balance I think the Vanguard approach works because the fund managers are forced to deviate only modestly from a passive strategy. We know that if you aren't a nut-job you can approximate a passive fund with several dozen individual stocks. My guess is that's all that's going on here -- people who aren't crazy are putting together diversified portfolios. That the aggregate effect is modestly better than the benchmark is most likely, to my intuition, a random effect, not proof that their managers have figured out the secret.
Absolutely none of this provides evidence for deviating from a passive approach.
Re: The benefits of active-passive combinations
Um, no. Your conclusion is illogical.manwithnoname wrote:VG also promotes index funds. Does that mean that index funds are not best for investors?goodenoughinvestor wrote:The key word is "promote"--it is to Vanguard's benefit to enroll customers in their active funds. Doesn't mean it's best for the investor.manwithnoname wrote:But VG promotes its actively managed funds.
If I go running because I believe it is good for me, and I also eat doughnuts, it doesn't mean I think doughnuts are good me.
That's what I do: I drink, and I know things. --Tyrion Lannister
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Re: The benefits of active-passive combinations
But is running better for you in the long run? I know people who have had heart attacks while running or exercising. One died on the tennis court. Another died while on an exercise bike. Several had a heart attack while jogging.tludwig23 wrote:Um, no. Your conclusion is illogical.manwithnoname wrote:VG also promotes index funds. Does that mean that index funds are not best for investors?goodenoughinvestor wrote:The key word is "promote"--it is to Vanguard's benefit to enroll customers in their active funds. Doesn't mean it's best for the investor.manwithnoname wrote:But VG promotes its actively managed funds.
If I go running because I believe it is good for me, and I also eat doughnuts, it doesn't mean I think doughnuts are good me.
You are making a subjective decision of which investment option is better based on your analysis but that is your opinion. Its logical to you but not others.
Only principle that determines whether investment analysis/IPS is correct is buy low, sell high.
Re: The benefits of active-passive combinations
I'm having a hard time following your (lack of) knowledge.manwithnoname wrote:But is running better for you in the long run? I know people who have had heart attacks while running or exercising. One died on the tennis court. Another died while on an exercise bike. Several had a heart attack while jogging.tludwig23 wrote:Um, no. Your conclusion is illogical.manwithnoname wrote:VG also promotes index funds. Does that mean that index funds are not best for investors?goodenoughinvestor wrote:The key word is "promote"--it is to Vanguard's benefit to enroll customers in their active funds. Doesn't mean it's best for the investor.manwithnoname wrote:But VG promotes its actively managed funds.
If I go running because I believe it is good for me, and I also eat doughnuts, it doesn't mean I think doughnuts are good me.
You are making a subjective decision of which investment option is better based on your analysis but that is your opinion. Its logical to you but not others.
Only principle that determines whether investment analysis/IPS is correct is buy low, sell high.
First, it doesn't matter if running is better for you in the long run. That is irrelevant to my example. (By the way, there is overwhelming evidence that regular aerobic exercise does increase both the quality and quantity of life.)
Second, I didn't make any decision regarding investments at all. (By the way, there is plenty of objective evidence--try reading thi site!)
That's what I do: I drink, and I know things. --Tyrion Lannister
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Re: The benefits of active-passive combinations
My point was that just because a company is promoting or marketing a financial product doesn't mean it makes sense for my portfolio. That's why I'm reading and learning from bogleheads--for objective advice.
- Aptenodytes
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Re: The benefits of active-passive combinations
Your point was clear; others' heads got clouded.goodenoughinvestor wrote:My point was that just because a company is promoting or marketing a financial product doesn't mean it makes sense for my portfolio. That's why I'm reading and learning from bogleheads--for objective advice.
By the way, although there's no logic in pursuing the "active-passive combination" idea the OP referred to, there is at least one compelling reason I can think of to use an active fund, and that's if you think an asset category has a discernible risk premium or diversification benefit but there are no viable index funds that track it. In such a case you would have a logical argument for investing in a harm-minimized active fund. For people who lack access to ETFs, the international small-cap category could be argued to constitute such a case (and Vanguard International Explorer would be the relevant harm-minimized active fund).
- neurosphere
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Re: The benefits of active-passive combinations
There are hundreds of fund families which have both active and passive funds. Every one of these fund families promotes both their active and passive funds. Ford promotes both their pickups as well as their sub-compacts. Who cares what they promote? It up to us to decide which is best for us.manwithnoname wrote:VG also promotes index funds. Does that mean that index funds are not best for investors?goodenoughinvestor wrote:The key word is "promote"--it is to Vanguard's benefit to enroll customers in their active funds. Doesn't mean it's best for the investor.manwithnoname wrote:But VG promotes its actively managed funds.
In the case of investing, low-cost wins in the long run, that's pretty clear, regardless of who promotes what. If a large-cap active fund can beat the cost of an SP500 ETF (0.05% if using Vanguard Admiral shares), then I would certainly consider it for my portfolio. If a an active small cap value fund can match or beat the 0.1% cost of VBR, then I would strongly consider that fund too.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
- Taylor Larimore
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Managed Fund or Index Fund ?
If I have a similar choice, I will chose the index fund. Here's why:
http://socialize.morningstar.com/NewSoc ... px#3464336
Best wishes.
Taylor
http://socialize.morningstar.com/NewSoc ... px#3464336
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: The benefits of active-passive combinations
In 1998, I picked Primecap and Windsor II as core holdings. Other funds considered were the Index 500 fund, and a 50/50 split between Growth Index and Value Index - which because of the poor choice of the Barra indexes ended up being the same as the Index 500. I wanted to split growth and value so I went with the active funds.
I began posting on the old Morningstar forum shortly after that. I've read these "Vanguard active funds what is Vanguard thinking active funds are terrible" threads for 15 years. And after all that, I've come to one conclusion - cost is the only thing that matters and Vanguard's active funds are low cost. So - you are probably fine either way.
I do realize there are some additional advantages to index funds, but it's not like Vanguard is totally out to left field with their active offerings.
The above core has performed very very well over the past 15 years and I still hold it. Luck? I don't know, but the funds are underpinned by their low cost advantage and that is what Vanguard brings to the table - in both their index and active offerings.
I began posting on the old Morningstar forum shortly after that. I've read these "Vanguard active funds what is Vanguard thinking active funds are terrible" threads for 15 years. And after all that, I've come to one conclusion - cost is the only thing that matters and Vanguard's active funds are low cost. So - you are probably fine either way.
I do realize there are some additional advantages to index funds, but it's not like Vanguard is totally out to left field with their active offerings.
The above core has performed very very well over the past 15 years and I still hold it. Luck? I don't know, but the funds are underpinned by their low cost advantage and that is what Vanguard brings to the table - in both their index and active offerings.
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Re: The benefits of active-passive combinations
I have owned Windsor II for several years because of its value strategy and kept it during the 08-09 decline. Admiral shares have .27ER. I agree that cost is the only thing that matters. For last 10 years Windsor II Admiral shares have slightly exceeded the performance of the Russell 1000 Value index with 0.75% better performance than the S & P 500 which has a .05ER. I recognize that sometimes value funds beat index funds and some times index funds beat value funds but I am satisfied with Windsor II.kenschmidt wrote:In 1998, I picked Primecap and Windsor II as core holdings. Other funds considered were the Index 500 fund, and a 50/50 split between Growth Index and Value Index - which because of the poor choice of the Barra indexes ended up being the same as the Index 500. I wanted to split growth and value so I went with the active funds.
I began posting on the old Morningstar forum shortly after that. I've read these "Vanguard active funds what is Vanguard thinking active funds are terrible" threads for 15 years. And after all that, I've come to one conclusion - cost is the only thing that matters and Vanguard's active funds are low cost. So - you are probably fine either way.
I do realize there are some additional advantages to index funds, but it's not like Vanguard is totally out to left field with their active offerings.
The above core has performed very very well over the past 15 years and I still hold it. Luck? I don't know, but the funds are underpinned by their low cost advantage and that is what Vanguard brings to the table - in both their index and active offerings.