Anyone still in favor of actively managed funds?

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joyandjerry
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Anyone still in favor of actively managed funds?

Post by joyandjerry »

We're new here, and understand the principles behind indexing. But we've had excellent return with the Primecap Funds (Cap Opp, Core,). I am interested to know if you feel actively managed funds have still have a place in investing, and if so, which ones?

Dan Weiner seems to have most of his $ in the Primecap Funds. I have no interest in his timing/newsletter, and realize he is a rather maligned figure here. We have also seen in other publications these funds recommended for core holdings.

Also, any opinions on Wellington or Windsor II for a Roth?

Look forward to your insights.
JOY & JERRY
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Post by cinghiale »

joyandjerry,

You will find a strong bent toward low-cost indexing here, but you will also find that many include some managed funds in the mix. I have my IRA money in Wellesley Income (as do a fair number of contributors to this board). One of my retirement accounts at work offers Pimco Total Return (PTTRX) with a reasonable .46% expense ratio. That fund now constitutes 20% of my fixed income holdings, and I have been quite happy with the fund's performance over the years. As the rest of my fixed income allocation is with Vanguard funds, I'm not overly concerned about the "active" element of Bill Gross roaming the fixed income galaxy at will. I think you will find a rather benign, if not cordial, collection of responses to your question... though still underscoring the fact that chasing managers, sectors, or performance (and paying high fees for the privilege of doing so) will overwhelmingly stack the deck against you.

With that, welcome to the forum!
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Post by ddb »

There's nothing inherently wrong with active management. An active fund and an index fund that have the same TOTAL COSTS and the same exposure to risk factors have the same expected returns and expected variances (with the assumption that the active fund has sufficient diversification so as to make nonsystematic risk acceptably small).

TOTAL COSTS consist of a fund's expense ratio plus transaction costs. Transaction costs cannot be explicitly determined, but they are a function of a fund's direct trading costs (trading commissions) and indirect trading costs (bid-ask spreads, market impact costs, soft-dollar arrangements with brokerage firms where the trades are being placed). A fund's turnover ratio is a good indicator of trading costs, as is the space in which the fund invests (e.g. an emerging markets small-cap value fund will have much higher indirect trading costs than a US large-cap growth fund).

Generally speaking, the Vanguard actively-managed funds have very low total costs, but they still are likely not as low as the index funds, which is why passively-managed funds tend to be preferred by many around here.

Based on your post, I'd encourage you to remember one oft-cited oft-ignored piece of guidance as it relates to investing: Past performance is not indicative of future results. This wisdom applies to the historical results of an active manager compared to his/her benchmark. The best indicator of future performance is costs.

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Re: Anyone still in favor of actively managed funds?

Post by jimdigriztn »

joyandjerry wrote:We're new here, and understand the principles behind indexing. But we've had excellent return with the Primecap Funds (Cap Opp, Core,). I am interested to know if you feel actively managed funds have still have a place in investing, and if so, which ones?
For investing purposes, I'd stick with indexing, other than the occasional proven winner like PrimeCap. For speculative purposes, on the other hand, I prefer active funds. Since I don't invest anymore, I'm only in active funds. (VEIEX is the only index fund in my universe of available funds that I'll consider for speculative use, mostly on account of its low purchase and redemption fees).
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Re: Anyone still in favor of actively managed funds?

Post by YDNAL »

joyandjerry wrote:We're new here, and understand the principles behind indexing. But we've had excellent return with the Primecap Funds (Cap Opp, Core,). I am interested to know if you feel actively managed funds have still have a place in investing, and if so, which ones?
joy,

I responded in your other thread. It depends on your IPS and what you own to conform to it.

In my case, I'm higher Fixed / lower Equities (Small and/or Value). I do own Wellesley for limited exposure to Large Value. Bottom line, know what you own, control costs and taxes, and we will know what worked best after we get there.
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Post by jh »

...
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Post by chipmaker »

I use actively managed funds sparingly and only when thay have a low ER. Currently, I have Wellington and PIMCO Total Return (PTTRX).
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Post by G12 »

About 1/3 of my equity holdings are in actively managed funds, primarily with Vanguard, and I own Pimco Total Return in a 401k, the rest of the equity holdings are in index funds or ETFs. I have owned Primecap and the Healthcare fund > 10 years and suggest you compare the long term returns to the respective large cap growth and health care indices and make your own conclusion. I always try to hold active equity funds in tax advantaged accounts due to turnover and capital gains.
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Post by TJAJ9 »

I own some GNMA(VFIIX). Great fund with low expenses.
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Post by mikep »

I own these actively managed funds primarily since no index is available: TIPS (.09 ER institutional VIPIX), intermediate treasury (.12 ER admiral VFIUX), VTRIX international value (.47 ER) and precious metal & mining (.39 ER).

Overall, the ER and turnover of these are not that bad. If an index was available for these from VG I'd probably switch - but government bonds are not a rocket science and fees are low anyway.
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Post by nisiprius »

I'm not doctrinaire about this and I don't think most Bogleheads are. I have dabbled in actively managed funds, maybe up to 10-15% of my portfolio, mostly Pax World Balanced Fund. (And, wait, that 10-15% isn't even counting Vanguard Inflation Protected Securities).

Let's assume that you believe the efficient market hypothesis is completely true. What's the worst case? The worst case is that the active fund adds manager risk and adds no compensating return for that risk--that it is, in effect, a random sample of a few dozen stocks from the S&P 500 and all that the attempted stock-picking is doing is to throw in some sample variation. And it has added costs.

Well, the added costs needn't be all that high--0.35% for Wellington, 0.33% for Wellesley. And the added manager risk needn't be very large, either. A few dozen stocks offer significant diversification.

So, again, even if you believe the EMH is true, investing in an active fund is not going to ruin your whole retirement, at least not in and of itself. If the stock market is going to drop 50%, it is important that your active fund drop exactly 50%? Or is it OK if it has half a chance of falling 45% and half a chance of falling 55%.

Percentage stock allocation has a big effect on the risk of your portfolio. Whether the stock allocation is comprised of index funds or actively managed funds has a far smaller effect.

So, if in fact active funds are no good at all, they needn't be terrible. And you can argue about it until the cows come home, but many people think "there might be something in it."

Throwing active management into the pot isn't so very different from backing your own "active management" decisions about things like REIT allocation, small value, etc. etc.
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Post by Petrocelli »

Five years ago, on the old Diehards forum, we became involved in one of the many "active versus passive" debates which often dominate this forum. This one concerned Primecap and TSM. The pro-TSM position was advanced by poster, and financial advisor, Jeff Troutner. I argued for Primecap.

Two posters indicated they sold their Primecap shares for TSM, after having read many cogent posts why you should not own actively managed funds. I argued for Primecap. As I said,

"I realize I am in a minority, but I often think this forum does a disservice by taking really sensible investors who have invested successfully in the past and convincing them to invest in TSM."

This lead to a between me and Jeff Troutner. He took TSM, and I took Primecap, assuming $100,000 was invested in both. As of today, here's where we stand:

* Primecap: $121,001
* TSM: $102,306

Thus, Primecap is beating TSM by almost 19%, or more than 3.5% per year.

Here's a link to the conversation that led to the bet.

http://socialize.morningstar.com/NewSoc ... px#1615907

On June 30, 2006, I made a "bet" with wagnerjb in which he took an index fund -- ishares Russell 100 (IWD), and I took an actively managed fund -- Windsor II (VWNFX).

Since then, Windsor II has lost 15.26%, but the index ETF has lost 20.56%. Thus, the actively managed fund returned 5.3% more. Note that if you included brokerage fees, Windsor II's lead would increase.

I think some posters here overstate the difficulty of picking good actively managed funds. In a tax-deferred account, I would take Primecap or Windsor II over an index fund any day. I would rather have a low cost manger pick my stocks than rely on the purported "wisdom" of the market.

Thus, I hold Cap.Opp., Selected Value, Primecap, International Explorer, Healthcare and International Growth,
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Post by trico »

STAR FUND OR PRIMECORE FUND. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS.
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Post by Robert T »

.
PRIMCAP have done an excellent job so far. Their Cap. Opportunity fund has had significant alpha since inception (i.e. excess return beyond just factor exposure). Will it continue? I don’t know. If you want active management, you could do far worse than PRIMCAP.

However, IMO asset allocation is a more important driver of portfolio returns than trying to select winning active managers.

Just a quick example: Dan Weiner’s growth portfolio [that includes the PRIMCAP funds, and other actively managed funds as I understand] has had an annualized return since the start of 2003 of 8.4%. My portfolio of index fund has had an annualized return of about 11% over the same time period (since start of my portfolio at beginning of 2003). Asset allocation differences in all likelihood accounts for most of the difference.

Robert
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Post by stevewolfe »

We have 50% of our investments in index funds (with Vanguard) and 50% in actively managed funds (between Vanguard and T. Rowe Price).

I've always felt that it was more important to feel comfortable with why I was buying a fund (asset allocation, risk tolerance, etc) than whether or not the fund was an index fund or a low cost actively managed fund.

That said, I agree with Petrocelli - there are some very good actively managed funds out there that are low cost. I'm in one for the last 12 years than has beaten the S&P 500 benchmark for the 1, 3, 5, 10 and 20 year time frame (according to the prospectus, however, that is not the stated goal of the fund but they provide the comparison for comparative purposes as S&P 500 is a widely followed benchmark) while having taken less risk. Now why would I get rid of that fund to save a couple hundred dollars per $10k invested every 10 years? That's what my grandmother used to call penny wise and pound foolish.

Past performance is not an indicator of future return for any fund regardless of type.

It's more important to be investing for your goals in low cost index funds AND/OR low cost active funds than to not be. So I don't sweat the small stuff on this one too much. I save at a rate I need to to conservatively reach my goals and hedge my bets between the two styles. To each their own.
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Post by pkcrafter »

We're new here, and understand the principles behind indexing. But we've had excellent return with the Primecap Funds (Cap Opp, Core,). I am interested to know if you feel actively managed funds have still have a place in investing, and if so, which ones?
Which Ones? Ones that are 1. low cost. 2. managed to fully benefit the investor. One is easy to determine. Two is not so easy. Vanguard funds fulfill both, BUT there is always a bit of additional risk in using active funds because various things can change. That's why you should never hold them in a taxable account. If you can select active funds correctly, the difference between active and passive is small in comparison to asset allocation and investor behavior.
Also, any opinions on Wellington or Windsor II for a Roth?
Both good funds, but like all funds they must be selected to provide a specific function within the portfolio. Normally we don't recommend a balanced fund like Wellington in a mix with stock and bond funds because it makes rebalancing harder and where to place the fund can be a problem.


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Post by dkdoy »

I own and have had good luck with many active funds. Fido Low Price and Contra have done well over long term. I still own Dodge and Cox and some Vanguard funds. However, passive investing with good allocation is pretty dependable and very simple.
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Post by sperry8 »

I agree with Petrocelli... active funds do have a place in portfolios. I am about 1/2 indexed and the other half active. Within active, I've found the PRIMECAP funds to be excellent (Cap Opp, PRIMECAP, And Primecap Aggressive Growth). (don't forget you can get into their funds directly if you are shut out, via their Primecap Odyssey group). I am also in Owens Healthcare fund, International Explorer and Dodge & Cox Int'l. I was in Windsor II for a long while and liked it when I had it.

Personally I don't like Selected Value... I've found it doesn't beat its bogey over long stretches. I use an index fund for this sector allocation.

Good luck,
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Re: Anyone still in favor of actively managed funds?

Post by jsnbrnd »

joyandjerry wrote: I am interested to know if you feel actively managed funds have still have a place in investing, and if so, which ones?
Look forward to your insights.
Vanguard bond funds, definitely. I own a few and would generally consider any I thought suitable for my AA.
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Post by sotaboy »

pkcrafter:
Normally we don't recommend a balanced fund like Wellington
Who is 'we'?
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Post by NightOwl »

It's the old story: there will always be active managers who succeed stupendously -- even some whom history (perhaps correctly) will grant skill -- but those geniuses can only be recognized in hindsight, and we'll debate eternally as to the duration of "hindsight" (was Peter Lynch lucky? Did Bill Miller get lucky?). So I'll agree that there are active funds that have served investors well over the past x years, but I won't jump into those funds now. So how will you use the knowledge? Get into Fidelity Low Priced or Contrafund, or VG Primecap, and take your chances. The only variable we can control is cost.

That said, many people have 401ks that include only managed funds -- those people have no choice but to choose the lowest-cost active fund and take their chances. In the final analysis, many of us own active funds in 401ks though we would rather not.

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Post by pkcrafter »

sotaboy wrote:
pkcrafter:
Normally we don't recommend a balanced fund like Wellington

It would be good if you are going to quote someone that you provide the entire quote in order to reference it properly. Once again, here is the rest of the story. Holding a balanced fund in a portfolio of all individual stock and bond funds can create a rebalancing problem, plus in many portfolios either the stock portion or the bond portion takes space needed for only bonds or only stocks. One other problem is the loss of selecting bond quality and duration. Rebalancing and fund placement are just easier if you don't include balanced funds.


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Post by SpringMan »

I use Wellington in an IRA and spouse's IRA is Wellesley Income. For us, being 82% tax advantaged accounts, there is not the location problem described above. If tax advantaged space is limited, balanced funds are not the way to go. Back on the subject of active funds, we also have TIPs, GNMA, Short Term Investment Grade bond funds. Active stock funds we own are Energy, Healthcare, Capital Opportunity, Primecap Core, International Explorer and as mentioned Wellington and Wellesley. All of these active funds are in IRAs/Roths. Our taxable accounts include VTI, VWO, VSS, and FSIIX (Fidelity Spartan International Index). To rebalance these I use Vanguard's Portfolio Tester Tools and M* xray. I just sold a position in Vanguard's Precious Metals and Mining as it seemed to concentrated and volatile for my taste with only 39 stocks. Overall portfolio is about 50% indexed and 50% active and 60/40 stock/bond.
Last edited by SpringMan on Sat Oct 03, 2009 10:47 am, edited 1 time in total.
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Post by jeffyscott »

Managed funds are not always more costly than the index alternatives. A couple examples:

Vanguard dividend growth has slightly lower ER and slightly lower turnover than the similar dividend appreciation index fund

Vanguard small cap value has a lower ER than my managed small cap value fund, however the managed fund has much lower turnover so the real costs may actually be less. Is 0.85% ER with 13% turnover better than 0.23% ER with 30% turnover?
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Post by Sheepdog »

Yes, both active and passive equally.
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Post by Doc »

NightOwl wrote:It's the old story: there will always be active managers who succeed stupendously -- even some whom history (perhaps correctly) will grant skill -- but those geniuses can only be recognized in hindsight, and we'll debate eternally as to the duration of "hindsight" ... l
Why is this "old story" only applied to active funds? Does it apply to the Russell 2000 when it was easy for active managers to "beat" the index by front running? It was not until we got "hindsight" what many determined that the Russell may not be a good index. What about the index funds that followed the Russell? Vanguard has just announced that they are changing the index used for their bond funds to a new (revised) Barclay's free float index set. Will these index funds "outperform" their active counterparts in the future? Or like the Russell will there be some glitch in the index that allows active manager to outperform them in the future? We will not know until we get "hindsight" and then the "old story" will still only be applied to active funds. You betcha.
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Post by ruralavalon »

We own 4 index funds (TSM, SCV, REIT & TI) plus individual Treasury STRIPS, and one managed fund (VGPMX).

The one managed fund is with Vanguard, has an expense ratio of 0.30% and is kept at no more than 5% of our portfolio in a tax protected account. We would not even consider a managed fund unless it had an expense ratio that was index-like, and would not hold one outside a tax protected account.

Costs and taxes kill returns.
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Re: Anyone still in favor of actively managed funds?

Post by YDNAL »

pkcrafter wrote:....Holding a balanced fund in a portfolio of all individual stock and bond funds can create a rebalancing problem, plus in many portfolios either the stock portion or the bond portion takes space needed for only bonds or only stocks. One other problem is the loss of selecting bond quality and duration. Rebalancing and fund placement are just easier if you don't include balanced funds.
Paul,

I agree with potential challenges of holding a Balanced Fund. That said, I wouldn't generalize as you just said.

For instance, I own Wellesley for 2 specific reasons in a Fixed-tilted portfolio.
1) I wish to add Large (mostly value) stocks (7.5% slice as it works-out) to my highly smallish/valuey index funds.
2) Add nominal corporate bonds (11.67% slice as it works-out) to Fixed dominated by Treasuries and Munis.
3) Would these slices matter much in the long-term.. maybe (maybe not).

In my case, it is not an issue of difficulty to rebalance, unwisely taking space (I assume you mean tax-protected), or selecting bond quality and duration.
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Post by Call_Me_Op »

The way I look at is as follows; if you had a $1 million portfolio, would you pay an extra $10,000 per year to have someone manage it for you? That's basically what you are doing with an active fund versus an index fund. (That doesn't even get into manager risk and trading expenses.)

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Post by Trev H »

My General US Equities (excluding REIT) are setup:

25% Value Index
25% PrimeCap CORE
50% Small Value Index

Primecap CORE gets me exposure to Large/Mid Growth at a reasonable price (a value approach to growth investing).

Value Index and Primecap CORE do not have one single stock in common (at least every time I have checked the top 25 that was the case).

I think it's the over priced growth stocks that drag down the performance of growth and that Primecap's GARP strategy has been proven a long term success. One of the few places that I feel it may just be worth the extra cost of active management.

==
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Post by SpringMan »

Call_Me_Op wrote:The way I look at is as follows; if you had a $1 million portfolio, would you pay an extra $10,000 per year to have someone manage it for you? That's basically what you are doing with an active fund versus an index fund. (That doesn't even get into manager risk and trading expenses.)

-Op
Not necessarily, your assuming active management is costing an extra 1%. My 50% actively managed, 50% indexed portfolio has an overall cost of .2%. Many of Vanguard's actively managed bond funds have lower expenses than their index funds. Look at GNMA admiral with its .13% expense ratio compared with Total Bond Index at .14%, or TIPs admiral at .12%. Yes, you can get a 1% difference at expensive firms but not if you stick with Vanguard. Wellington or Wellesley tip the scales at .23% for admiral shares. Some of my more expensive funds are index funds like Vanguard Emerging Markets or FTSE -US small cap.
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Post by Petrocelli »

Call_Me_Op wrote:The way I look at is as follows; if you had a $1 million portfolio, would you pay an extra $10,000 per year to have someone manage it for you? That's basically what you are doing with an active fund versus an index fund. (That doesn't even get into manager risk and trading expenses.)

-Op
My portfolio which uses almost exclusively actively managed funds has an expense ratio of .27%.
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Post by jeffyscott »

Also no where near that arbitrary 1% claim here, only about 7% of our assets are in index funds, overall portfolio ER is 0.42%.
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Post by Beagler »

Anyone who owns VG's TIPS fund owns an actively managed fund.

VG Wellington has $44 billion in assets -- they're doing something right.
Last edited by Beagler on Sun May 06, 2012 10:33 pm, edited 1 time in total.
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Question...

Post by Brewtownphilee »

My wife and I use index only, except for the Vanguard TIPS Fund. But, even Jack Bogle has said its a closet index fund. If you're going to be "doctrinaire" (nice word, nisiprius) on the use of index funds, I think the bond area would be the best area to do it. There is less "wiggle room" for the bond fund managers if they screw up, because of the smaller average historical returns.

In regards to the TSM vs. Primecap wager, I'm curious if we have any measure of risk available for two funds during the time in question? That often gets forgotten in this type of debate.

As far as Mr. Wiener goes, he was mentioned in Prof. Tower's presentation this past week in DFW. His portfolio(s) have outperformed at times, but when their risk is taken into account, they don't look nearly as good. Prof Tower stated he would be posting the study on the site ASAP, so the OP should keep an eye out and he'll get a good bit of data on that.
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balanced funds

Post by pkcrafter »

YDNAL, generalize it is exactly what I did. Of course there are situations determined by the portfolio and the knowledge of the investor where this is perfectly acceptable.

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Post by BigD53 »

Vanguard managed funds?

Absolutely!

I would have no problem putting my entire retirement portfolio in Wellesley, or Wellington, or a combination of both.

However, I still got a bit of "boglehead" blood in me. I throw in a tad of Target Retirement Income for good measure. :lol:
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Re: Question...

Post by Petrocelli »

Brewtownphilee wrote:In regards to the TSM vs. Primecap wager, I'm curious if we have any measure of risk available for two funds during the time in question? That often gets forgotten in this type of debate.
According to the Quantext Portfolio Planner, the two funds had the exact same standard deviation over the past 5 years (15%).

Primecap had a lower beta (.97 to 1).
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Post by jeffyscott »

Also it appears to have lost less from the Oct 2007 high to the March 2009 low.
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Post by Beagler »

Anyone who owns a Vanguard Target Retirement Fund recalls just how "actively managed" (so to speak) they were in 2006! :)
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Post by topper1296 »

I have a mix of active (57%) and passive (43%) funds.

401k - 3 actives - PIMCO Total Return, small cap value, int'l large cap growth (I don't have a choice of passive funds)

Vanguard - 3 actives (ST Corp, Equity Income, TIPS) and 2 passives (Total Stock, Total Int'l). I had the REIT Index a couple times in the past and will probably have it again at some point in the future.

I don't see any problem with having both types if the ER is reasonable and it fits into your asset allocation.
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Brewtownphilee
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Re: Question...

Post by Brewtownphilee »

Petrocelli wrote:
Brewtownphilee wrote:In regards to the TSM vs. Primecap wager, I'm curious if we have any measure of risk available for two funds during the time in question? That often gets forgotten in this type of debate.
According to the Quantext Portfolio Planner, the two funds had the exact same standard deviation over the past 5 years (15%).

Primecap had a lower beta (.97 to 1).
I am surprised they have the same standard deviation. Please correct me if I'm wrong, but if TSM has a higher beta, doesn't Primecap have the same volatility for less diversification? If so, do you like the manager? I see it currently has over 10% in foreign holdings. So the funds are fairly comparable except for that. Not trying to start anything here, I'm just trying to understand. :D
Last edited by Brewtownphilee on Sun Oct 04, 2009 3:07 pm, edited 1 time in total.
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LynnC
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Post by LynnC »

Wellington!

LynnC
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stratton
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Post by stratton »

Don't look to close at the Vanguard bond funds without "index" in the name. :wink:

Low ER, low turnover and don't do anything stupid are what counts. In this case "closet index fund" is good.

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Vanguard's indexed versus managed funds

Post by tower »

Here is Jack's take on the issue from an interview with Paul Merriman in 2006. Incidently, Merriman has some neat interviews.

Paul Merriman: “How does Vanguard justify with this great family of index funds also having all of these actively managed funds?” [Merriman (2006)]

John C. Bogle: “Well I don’t run Vanguard any longer, but I will take plenty of responsibility for having those active funds in all of the years I ran it. And the answer to that is really a couple of things. One, a lot of investors, no matter how persuasive the case for indexing is, and it’s overpoweringly persuasive, just don’t quite get it. They want a little more activity. They want something to watch. Index funds, as you all know, are roughly as exciting as watching paint dry or maybe watching the grass grow. They create great returns but they’re not that exciting. So what we tried to do and what I tried to do personally was pick good managers, and that’s very, very hard to do. I want to be clear on that, and I have some hits and some runs and some errors in that category, have funds with multiple managers, so you get a much broader diversification, which is not unlike an index fund. . . . [for example, take] our Windsor II fund. It’s a large cap value fund. And it has five different managers. I think that’s the number now. And so you are going to tend to have a value average return for that fund. And then, actually, make sure you have the other two big advantages of indexing, or three really, no sales commissions, very low expense ratios, because I negotiated with all those advisors and got those fees as low as I could possibly get them, and hire advisors with low portfolio turnover. An article was done by some professors at Duke University about a year ago and they showed that our active managers in the life of the index fund actually did a hair better than the index fund. [Reinker and Tower (2005)]. On the other hand if we had started the comparison a little bit later, the active managers would have done a little bit worse. But I think it’s a valid strategy. What can I do and tell you? I’m still 80% indexed.” [Bogle (2006)].

Now by way of shameless advertising. Here is the link to my take on the issue.

The paper is PERFORMANCE OF ACTIVELY MANAGED VERSUS INDEX FUNDS: THE VANGUARD CASE

The link to it is:

http://www.econ.duke.edu/Papers/PDF/041 ... ersion.pdf

Ed
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Post by sergeant »

We are almost all index with the exceptions of GNMA, Healthcare, and D&C International. Active is about 20% of our portfolio.
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Fbone
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Post by Fbone »

What's the latest reliable statistic on the percentage of actively managed funds that beat their corresponding index?
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stratton
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Post by stratton »

Fbone wrote:What's the latest reliable statistic on the percentage of actively managed funds that beat their corresponding index?
Low fund expenses have the most correlation with higher performance.

That doesn't answer your question, but that's about as concrete an answer you're going to get.

Paul
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what proportion of managed funds beat the index funds?

Post by tower »

If you look at what happened yesterday it is probably about 50%. As the time period increases the fraction shrinks. It also depends on what class of fund you are looking at. Different classes have different expense ratios.
So there is no simple answer. Look in google under "moral turpitude edward tower" and you will get one set of numbers from an 11 year period. You want to go with good mutual fund families as that article argues. best, ed
Trev H
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Post by Trev H »

"What's the latest reliable statistic on the percentage of actively managed funds that beat their corresponding index?"

Here is a rather simiple look at answering that question - using a excellent / fair comparison (Vanguard Mutual Funds only).

Moderate Balanced Funds (sorted by 10yr return)

Code: Select all

Fund.........1yr.....5yr.....10yr
==================================
Wellington....4.53....5.21....5.95
STAR..........5.53....4.41....5.29
Bal Index.....1.40....3.45....3.32
LS Mod Gr.....0.04....3.43....3.29
==================================
Low Cost Active Management obviously ruled that group !

Conservative Balanced Funds (sorted by 10 yr return)

Code: Select all

Fund.........1yr.....5yr.....10yr
==================================
Wellessley...9.01....5.01....6.53
TR Income....5.84....4.11....----
LS Income....5.28....3.94....4.47
LS Mod Gr....2.87....3.66....3.98
==================================
10yr return data not available on TR Income, but it looks like it might take 2nd place in this group.

Still Low Cost Managed via Wellesley Income KICKED BUTT !!

US Equity

Code: Select all

Fund.........1yr.....5yr.....10yr
==================================
PRIMECAP....-4.01....4.51....4.25
TSM.........-6.06....1.75....0.84
500 Index...-6.87....0.94...-0.23
Growth Idx..-3.84....1.91...-1.70
==================================
Hmmmmm - looks like low cost active management is kicking some seriouis tail there too.

How about International Funds ?

Code: Select all

Fund............1yr.....5yr.....10yr
====================================
Intl Explorer..14.08....8.72....8.07
Intl Value......4.45....7.97....5.02
Intl Growth.....4.34....7.52....4.09
Total Intl......4.65....7.69....3.68
====================================
Oh well - so much for index beating active management :-(

Looks like that might only be true if you look at skewed data sets where active management includes high cost, much higher cost, than Vanguard's low cost active funds do :-)

If you are going to invest in activly managed funds then at least at Vanguard you have a very good chance of doing as well, possibly even better than the index fund options.

===
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