Are Vanguard's actively managed funds better?

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CULater
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Are Vanguard's actively managed funds better?

Post by CULater »

Comprehensive study concludes Vanguard is no better than anybody else at active management, despite low ERs. Investors should stick with their passive funds.
50% (30 funds) have underperformed their respective benchmarks since inception, having delivered a NEGATIVE alpha
50% (30 funds) have outperformed their respective benchmarks since inception, having delivered a POSTIVE alpha
3.3% (2 funds) have outperformed their respective benchmarks consistently enough since inception to provide 95% confidence that such outperformance will persist as opposed to being based on random outcomes
In general, we conclude that Vanguard’s family of active funds has no expectation of producing above-average returns for their investors. In fact, the chances are no better than a fair coin.

In general, Vanguard has not demonstrated that their process of hiring the best analysts and managers and implementing their investment strategies is superior to anyone else. To say they apply a unique process to just 2 of their investment strategies seems very unlikely. The majority of active funds offered by Vanguard have failed to outperform their benchmark since inception. Of those that did by a statistically significant amount, it is similar to what we would expect by random chance alone.
https://www.ifa.com/articles/Vanguards_ ... rformance/
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lack_ey
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Re: Are Vanguard's actively managed funds better?

Post by lack_ey »

This whole series from IFA suffers from kind of sloppy methods. The benchmarks often don't match the funds that well, sometimes because nothing really is available. Note the weird mix of share classes used, though most here are investor shares (higher ER, looks worse)

Here in particular note all the might-as-well-be-passive Vanguard bond funds considered. A lot of those are the cheapest or among the cheapest available and are not really attempting to generate alpha.

So they kind of have a point I suppose but it's not really worth looking at seriously given the issues.
stlutz
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Re: Are Vanguard's actively managed funds better?

Post by stlutz »

Regardless of the issues lack_ey has pointed out, I don't think the conclusion that VG active funds have neither added nor subtracted value leads to the conclusion that passive is better. I think instead that the conclusion would be that they are equally good.
InvMoney
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Re: Are Vanguard's actively managed funds better?

Post by InvMoney »

Some Vanguard managed funds are better than relative index funds, most notably Vanguard Wellington (VWELX - Investor Shares - 60% to 65% stocks / 40% to 35% bonds) and Vanguard Wellesley Income (VWINX - Investor Shares - 35% to 40% stocks / 65% to 60% bonds ). Supporting data follows.
__________________________________________________________________________________________________________________________

For the 5 year period of 2013 thru 2017:

Wellington had an average annual return of 11.05%, compared to 8.74% for the Vanguard Life Style Moderate Growth Fund (VSMGX - 60% invested in US and International stock indexes / 40% invested in US and International bond indexes) and 10.25% for the Balanced Index Fund (VBINX - 60% invested in US total stock index / 40% invested in US total bond index).

Wellesley had an average annual return of 7.36%, compared to 6.55% for Vanguard Life Style Conservative Growth Fund (VSCGX - 40% invested in US and International stock indexes / 60% invested in US and International bond indexes).
___________________________________________________________________________________________________________________________

For the 10 year period of 2008 thru 2017:

Wellington had an average annual return of 8.25%, compared to 6.29% for the Vanguard Life Style Moderate Growth Fund and 7.79% for the Balanced Index Fund.

Wellesley had an average annual return of 7.33%, compared to 5.25% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________

For the 15 year period of 2003 thru 2017:

Wellington had an average annual return of 9.64%, compared to 8.15% for the Vanguard Life Style Moderate Growth Fund and 8.59% for the Balanced Index Fund.

Wellesley had an average annual return of 7.39%, compared to 6.61% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________
Last edited by InvMoney on Sun Jun 17, 2018 1:29 pm, edited 1 time in total.
columbia
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Re: Are Vanguard's actively managed funds better?

Post by columbia »

VHGEX (Global Equity) has outperformed Total World (VTWSX/VT) for the life of the latter.

That might or might not be true in the future.
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Kenkat
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Re: Are Vanguard's actively managed funds better?

Post by Kenkat »

They could have named the article “Vanguard Active Funds: Well, They’re Not Worse”.
The majority of active funds offered by Vanguard have failed to outperform their benchmark since inception.
The study shows 50% of active funds outperformed their benchmark and 50% did not. Since when did 50% become a majority? Based on that analysis, this quote:
Based on our analysis, we challenge Vanguard to defend the reasons why they continue to offer actively managed mutual funds.
Could just have easily been written as this:

Based on our analysis, we challenge Vanguard to defend the reasons why they continue to offer index mutual funds.

Because what the study really shows is that it’s not so much index or active that mattters, it’s cost that matters. Low cost is important, really important. This whole active / index argument? Not so much.
tibbitts
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Re: Are Vanguard's actively managed funds better?

Post by tibbitts »

InvMoney wrote: Sun Jun 17, 2018 1:14 pm Some Vanguard managed funds are better than relative index funds, most notably Vanguard Wellington (VWELX - Investor Shares - 60% to 65% stocks / 40% to 35% bonds) and Vanguard Wellesley Income (VWINX - Investor Shares - 35% to 40% stocks / 65% to 60% bonds ). Supporting data follows.
__________________________________________________________________________________________________________________________

For the 5 year period of 2013 thru 2017:

Wellington had an average annual return of 11.05%, compared to 8.74% for the Vanguard Life Style Moderate Growth Fund (VSMGX - 60% invested in US and International stock indexes / 40% invested in US and International bond indexes) and 10.25% for the Balanced Index Fund (VBINX - 60% invested in US total stock index / 40% invested in US total bond index).

Wellesley had an average annual return of 7.36%, compared to 6.55% for Vanguard Life Style Conservative Growth Fund (VSCGX - 40% invested in US and International stock indexes / 60% invested in US and International bond indexes).
___________________________________________________________________________________________________________________________

For the 10 year period of 2008 thru 2017:

Wellington had an average annual return of 8.25%, compared to 6.29% for the Vanguard Life Style Moderate Growth Fund and 7.79% for the Balanced Index Fund.

Wellesley had an average annual return of 7.33%, compared to 5.25% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________

For the 15 year period of 2003 thru 2017:

Wellington had an average annual return of 9.64%, compared to 8.15% for the Vanguard Life Style Moderate Growth Fund and 8.59% for the Balanced Index Fund.

Wellesley had an average annual return of 7.39%, compared to 6.61% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________
I think your methodology is faulty. I own both the funds you mention but there's nothing magic about them. Over the years both W & W and the funds you're comparing them to have changed in composition, not in the same directions and not at the same time, such that they're not even close to comparable. You buy them with the hope that you might squeeze out an extra .25% over time through some combination of luck and skill, and frankly because it's kind of a hobby to watch them and hope they do better than a reasonable benchmark. So while you have supporting data you could have had supporting data showing the superiority of any number of other Vanguard or competing funds that outperformed more reasonable benchmarks for extended periods and but have since fallen from favor.
InvMoney
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Re: Are Vanguard's actively managed funds better?

Post by InvMoney »

While some of the specific stock and bond holdings of the Wellington and Wellesley Income funds have changed since 2000, the investment philosophy of both of these funds has not. This is also the case for the Life Style Conservative Growth, Moderate Growth and Balanced Index funds.

It's true that past performance of funds is not entirely indicative of future performance, and this applies for index funds as well as managed funds. That said, I believe that past performance of funds over a long-term period that includes both bull and bear markets is a somewhat useful gauge upon which to predict future relative performance.
Last edited by InvMoney on Mon Jun 18, 2018 11:43 am, edited 1 time in total.
Northern Flicker
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Re: Are Vanguard's actively managed funds better?

Post by Northern Flicker »

InvMoney wrote: Sun Jun 17, 2018 1:14 pm Some Vanguard managed funds are better than relative index funds, most notably Vanguard Wellington (VWELX - Investor Shares - 60% to 65% stocks / 40% to 35% bonds) and Vanguard Wellesley Income (VWINX - Investor Shares - 35% to 40% stocks / 65% to 60% bonds ). Supporting data follows.
__________________________________________________________________________________________________________________________

For the 5 year period of 2013 thru 2017:

Wellington had an average annual return of 11.05%, compared to 8.74% for the Vanguard Life Style Moderate Growth Fund (VSMGX - 60% invested in US and International stock indexes / 40% invested in US and International bond indexes) and 10.25% for the Balanced Index Fund (VBINX - 60% invested in US total stock index / 40% invested in US total bond index).

Wellesley had an average annual return of 7.36%, compared to 6.55% for Vanguard Life Style Conservative Growth Fund (VSCGX - 40% invested in US and International stock indexes / 60% invested in US and International bond indexes).
___________________________________________________________________________________________________________________________

For the 10 year period of 2008 thru 2017:

Wellington had an average annual return of 8.25%, compared to 6.29% for the Vanguard Life Style Moderate Growth Fund and 7.79% for the Balanced Index Fund.

Wellesley had an average annual return of 7.33%, compared to 5.25% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________

For the 15 year period of 2003 thru 2017:

Wellington had an average annual return of 9.64%, compared to 8.15% for the Vanguard Life Style Moderate Growth Fund and 8.59% for the Balanced Index Fund.

Wellesley had an average annual return of 7.39%, compared to 6.61% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________
Over at least the last 5-8 years, the benefit has come from limiting the bond portfolio to corporate bonds. A mix of 60% VTSAX (total US stocks) and 40% VCIT beat the Wellington fund easily looking at both the last 5 years and the last 8 years. VCIT was created just over 8 years ago so I didn’t look back further.

If you want to take more risk in a portfolio by limiting bond holdings to corporate credit, you have a good chance of being rewarded with a higher expected return. If you did that with index funds over the last 8 years you would have come out ahead of the Wellington fund.

Growth of $10,000 invested on 6/17/2010 in:

VWELX: $21,619.51
60% VTSAX / 40% VCIT: $23,514.37
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jeffyscott
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Re: Are Vanguard's actively managed funds better?

Post by jeffyscott »

jalbert wrote: Sun Jun 17, 2018 6:39 pm
InvMoney wrote: Sun Jun 17, 2018 1:14 pm Some Vanguard managed funds are better than relative index funds, most notably Vanguard Wellington (VWELX - Investor Shares - 60% to 65% stocks / 40% to 35% bonds) and Vanguard Wellesley Income (VWINX - Investor Shares - 35% to 40% stocks / 65% to 60% bonds ). Supporting data follows.
__________________________________________________________________________________________________________________________

For the 5 year period of 2013 thru 2017:

Wellington had an average annual return of 11.05%, compared to 8.74% for the Vanguard Life Style Moderate Growth Fund (VSMGX - 60% invested in US and International stock indexes / 40% invested in US and International bond indexes) and 10.25% for the Balanced Index Fund (VBINX - 60% invested in US total stock index / 40% invested in US total bond index).

Wellesley had an average annual return of 7.36%, compared to 6.55% for Vanguard Life Style Conservative Growth Fund (VSCGX - 40% invested in US and International stock indexes / 60% invested in US and International bond indexes).
___________________________________________________________________________________________________________________________

For the 10 year period of 2008 thru 2017:

Wellington had an average annual return of 8.25%, compared to 6.29% for the Vanguard Life Style Moderate Growth Fund and 7.79% for the Balanced Index Fund.

Wellesley had an average annual return of 7.33%, compared to 5.25% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________

For the 15 year period of 2003 thru 2017:

Wellington had an average annual return of 9.64%, compared to 8.15% for the Vanguard Life Style Moderate Growth Fund and 8.59% for the Balanced Index Fund.

Wellesley had an average annual return of 7.39%, compared to 6.61% for Vanguard Life Style Conservative Growth.
___________________________________________________________________________________________________________________________
Over at least the last 5-8 years, the benefit has come from limiting the bond portfolio to corporate bonds. A mix of 60% VTSAX (total US stocks) and 40% VCIT beat the Wellington fund easily looking at both the last 5 years and the last 8 years. VCIT was created just over 8 years ago so I didn’t look back further.

If you want to take more risk in a portfolio by limiting bond holdings to corporate credit, you have a good chance of being rewarded with a higher expected return. If you did that with index funds over the last 8 years you would have come out ahead of the Wellington fund.

Growth of $10,000 invested on 6/17/2010 in:

VWELX: $21,619.51
60% VTSAX / 40% VCIT: $23,514.37
However, Wellington's stock allocation is probably more like Dividend Appreciation Index rather than total stock market. Your 8 years leaves out the 2008/09 decline when it's high quality stocks likely did better.

I recently compared Wellington to a mix of 65% Dividend growth (VDIGX) and 35% Intermediate Investment Grade Bond (VFIDX/VFICX) and total returns were just about the same. Over the 12 years that can be compared, VDIGX has beaten the Dividend Appreciation index fund (VDAIX), BTW.
Northern Flicker
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Re: Are Vanguard's actively managed funds better?

Post by Northern Flicker »

However, Wellington's stock allocation is probably more like Dividend Appreciation Index rather than total stock market. Your 8 years leaves out the 2008/09 decline when it's high quality stocks likely did better.

I recently compared Wellington to a mix of 65% Dividend growth (VDIGX) and 35% Intermediate Investment Grade Bond (VFIDX/VFICX) and total returns were just about the same.
So still not the result of superior active management if you can replicate the return with two index funds. Dividend growth equity portfolios tend to overperform when interest rates fall and underperform when rates rise.
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jeffyscott
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Re: Are Vanguard's actively managed funds better?

Post by jeffyscott »

Dividend growth is not an index fund, Dividend Appreciation is. If the stock portion of Wellington equaled the return of Dividend Growth, then it beat Dividend Appreciation. I'm not necessarily saying that it did, but that's what I'd look at.

Intermediate investment grade is technically not an index fund either.

edit:
After looking at it...VDAIX growth of $10,000 since inception is at $26,488 and VWENX is at $24,839, VFIDX is at $18,267, so the 65/35 VDAIX/VFIDX mix would be at $23,611 (the actively managed VDIGX is at $29,582, so 65/35 mix with that would be at $25,622). So in this comparison both Wellington and Dividend Growth were better than the index fund.

Oh, also if comparing Wellington to total market index alternatives, it should really be compared to something like 50% US, 15% EAFE, 35% (mostly corp.) bond. In addition to return, risk should be considered, Wellington declined by about 1/3 in 2008/09.
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