Boglehead approved actively managed funds!

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Slinky
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Boglehead approved actively managed funds!

Post by Slinky » Sat Jun 03, 2017 8:06 am

What low cost, low turnover stock and bond funds(if any) fall into the Boglehead philosophy if you wanted 5-10% of your portfolio to be actively managed?

NibbanaBanana
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Re: Boglehead approved actively managed funds!

Post by NibbanaBanana » Sat Jun 03, 2017 8:12 am

I like the STAR fund. It's really unique in the sense that it is an entire investment portfolio in a single fund. Like the LS funds but managed instead of index. VG generally has very good managed funds. They really stay on top of the managers and make sure that they earn their pay.

Levett
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Re: Boglehead approved actively managed funds!

Post by Levett » Sat Jun 03, 2017 8:22 am

Dunno about Bogleheads, but here's Vanguard's list of "select funds."

https://investor.vanguard.com/mutual-fu ... nd-returns

Lev

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CyberBob
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Re: Boglehead approved actively managed funds!

Post by CyberBob » Sat Jun 03, 2017 8:24 am

Jack Bogle has mentioned Dodge & Cox and Longleaf Partners.

student
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Re: Boglehead approved actively managed funds!

Post by student » Sat Jun 03, 2017 8:25 am

For non-vanguard funds, you may want to look at Dodge and Cox. TIAA-CREF Social Choice has 0.46 expense ratio and it is quite good. I think Northern Trust is also decent but I am not familiar with it.

Mike Scott
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Re: Boglehead approved actively managed funds!

Post by Mike Scott » Sat Jun 03, 2017 8:30 am

Vanguards Wellington and Wellesley seem to be generally well regarded.

bantam222
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Re: Boglehead approved actively managed funds!

Post by bantam222 » Sat Jun 03, 2017 10:39 am

Why do you want 5-10% of your portfolio to be actively managed? Aiming for higher returns from actively managed funds?

avalpert
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Re: Boglehead approved actively managed funds!

Post by avalpert » Sat Jun 03, 2017 10:39 am

What are you actually trying to accomplish? For what reason are you looking to add manager-risk to a portion of your portfolio, reduce diversification and increase costs?

Since one of the tenets of Boglehead philosophy is Use Index Funds When Possibile the answer to your question is really none unless you are looking to invest in a space where no index funds exist. Now, if you have a specific goal you are trying to achieve by adding an active fund maybe we can give you guidance on the least bad option.

Dominic
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Re: Boglehead approved actively managed funds!

Post by Dominic » Sat Jun 03, 2017 11:11 am

The criteria I'd use to evaluate active funds:

- Low expense ratios and low turnover
- Sector diversification (unless you're specifically targeting a sector such as healthcare for one reason or another)
- Value OR quality tilted stock
- High quality AND intermediate term bonds
- Long, consistent history (portfolio construction is consistent, AUM hasn't suddenly boomed recently)

Essentially, you want to aim for a pseudo-index fund. Give management a little flexibility to take advantage of factor anomalies and fine-tune asset allocation, but not so much flexibility that they're taking advantage of you.

Wellington and Wellesley are outstanding in all these regards. Vanguard's other active funds are also worth a look. Dodge & Cox's offerings are also very good, as others have mentioned.

retiredjg
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Re: Boglehead approved actively managed funds!

Post by retiredjg » Sat Jun 03, 2017 11:16 am

I'd use Wellesley Income or Wellington if I were going to add an actively managed fund.

Jack FFR1846
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Re: Boglehead approved actively managed funds!

Post by Jack FFR1846 » Sat Jun 03, 2017 11:18 am

I doubt you'll get a universally agreed answer here. For me, the answer is "none" and I am amazed by 2 big things I hear from Bogleheads:

1) Many love Wellington and Wellsley
2) Many justify buying a $100k Tesla Model S

I don't get why.....for either of these.
Bogle: Smart Beta is stupid

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whodidntante
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Re: Boglehead approved actively managed funds!

Post by whodidntante » Sat Jun 03, 2017 11:29 am

These are some actively managed funds that I own by choice. I like them and would likely buy again if I didn't own them.
DFA Emerging Markets Value
T. Rowe Price Stable Value
AQR Long-Short Equity
AQR Market Neutral
Fidelity Money Market (holds expenses for current month)

I own T. Rowe Price New Income due to limited fund availability in my 401k, but I wouldn't chose to buy it if I had a better option.

The Wizard
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Re: Boglehead approved actively managed funds!

Post by The Wizard » Sat Jun 03, 2017 11:35 am

Jack FFR1846 wrote:I doubt you'll get a universally agreed answer here. For me, the answer is "none" and I am amazed by 2 big things I hear from Bogleheads:

1) Many love Wellington and Wellsley
2) Many justify buying a $100k Tesla Model S

I don't get why.....for either of these.
Can you say Zoooooom?
I'm not one for the W funds and I'm holding out for the hybrid Mustang...
Attempted new signature...

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Earl Lemongrab
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Re: Boglehead approved actively managed funds!

Post by Earl Lemongrab » Sat Jun 03, 2017 11:51 am

The only active fund I hold is the 401(k) stable value. Those are pretty much by definition active.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Theoretical
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Re: Boglehead approved actively managed funds!

Post by Theoretical » Sat Jun 03, 2017 11:54 am

Vanguard's quant group has some good stuff:

viewtopic.php?t=206890

I also like the RAFI funds as DFAish without the advisor.

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nisiprius
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Re: Boglehead approved actively managed funds!

Post by nisiprius » Sat Jun 03, 2017 12:09 pm

Slinky, I, too, don't understand what you're getting at.

It's arguable that sensible, competent active management can add a small amount of alpha, perhaps 0.50% above the index. It's also arguable that some active managers, either deliberately or intuitively, apply some of the strategies of factor-based investing and that these strategies work. And, finally, it's arguable that many investors would prefer to take a small amount of extra risk in return for a small amount of extra return (although it's not clear why they shouldn't do this by adjusting their stock/bond allocation). My reason for not acting on any of these things is that I'm a "satisficer," not an optimizer--I don't know how far I actually believe in any of them.

If you can get what you think is good active management at a very low expense ratio, then you might prefer an actively managed fund--but as a core holding in place of an index fund, not an outrigger. For example, if we start with
portfolio 1 (blue):
42% U.S. stock index, VTSMX;
18% international index, VGTSX;
40% bond index portfolio, VBMFX;

exchange all of the U.S. stock fund for, let's say, American Funds Growth Fund of America, AGTHX--WARNING--I picked that because I know in hindsight that it outperformed the index in the past--then we would have gotten distinctly better performance.

But if we only exchange 5% of the portfolio, i.e. 37% VTSMX, 5% AGTHX--Portfolio 3, yellow--then the effect is minimal.

Source
Image

I think that sort of thing is pointless. It's not quite harmless if it leads to fussing, fretting, paying too much attention to the portfolio, agonizing over whether to do more switching, and so forth.

For a 5-10% holding to have an effect, it needs to be something fundamentally different from Total Stock, not just actively managed. Almost by definition that means something resembling a gamble. While you can certainly find people who post in the Bogleheads forum who have various ideas in that direction, I don't think doing it is consistent either with the Bogleheads investment philosophy or with anything I can remember John C. Bogle writing, but perhaps other people can remember things.

In terms of "Boglehead-approved," the obvious exception is that John C. Bogle was associated with the Wellington Fund, an actively-managed balanced fund, for many years, has written a lot about it, owns a lot of it himself, and has said he has no plans to change, partly because of tax considerations.
Last edited by nisiprius on Sat Jun 03, 2017 12:15 pm, edited 1 time in total.
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aristotelian
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Re: Boglehead approved actively managed funds!

Post by aristotelian » Sat Jun 03, 2017 12:15 pm

I have a large allocation in Wellesley because it is one of the few good options in my plan. I had a large allocation in TR Price Mid Cap Value but sold to pay my mortgage. I would probably invest in Primecap if it was available to me.

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jhfenton
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Re: Boglehead approved actively managed funds!

Post by jhfenton » Sat Jun 03, 2017 12:40 pm

I would be content with pretty much any of Vanguard's active bond funds. In fact, in many areas of the bond market, I prefer active bond funds, costs being equal.

In particular, I don't believe indexing is ideal for muni bonds or high yield corporate bonds. In fact, other than treasury bonds, I don't think market-cap weighted indexing is ideal for bonds. Unlike equities, for which market-cap logically represents the value assigned to the stock by the market, for bonds, market-cap is determined by the amount of debt the company or sovereign chooses to sell. In no way is bond market cap a judgment of the market. And bond indices are of necessity usually limited to the most liquid bonds, while the best values can often be found in less illiquid bonds. I believe a good bond manager can more than make up a few bp. But few is the key. I wouldn't pay the 50 bp for the typical non-Vanguard active bond fund.

That said, I do own three Vanguard bond index funds: Intermediate Government Bond Index Admiral, Intermediate Corporate Bond Index Admiral, and Short Term Corporate Bond Index Admiral. I also own the active Vanguard Ohio Long Term Tax Exempt.

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WoodSpinner
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Re: Boglehead approved actively managed funds!

Post by WoodSpinner » Sat Jun 03, 2017 12:53 pm

I have a small portion of my Bond allocation in Pimco actively managed bond funds. For me they have a proven track record of active management, bearing the total bond indexes at reasonbly low rates.

https://www.pimco.com

Evrything else is in indexes or ETFs.

krow36
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Re: Boglehead approved actively managed funds!

Post by krow36 » Sat Jun 03, 2017 9:03 pm

Here's what The Bogleheads' Guide to Investing has to say about actively managed funds:
BOGLEHEADS AND ACTIVELY MANAGED FUNDS
From what you have read in this chapter thus far, you might believe we are index zealots who believe all actively managed funds are simply a waste of money. While all three of us believe that indexing is an excellent investment strategy, all three of us own actively managed Vanguard funds, too. Although Vanguard is known as the pioneer of index funds, it also offers a wide variety of actively managed funds, with some having delivered great returns. For example, for the first 20 years of its existence (1984 to 2004), Vanguard’s Health Care Fund had the highest annual average return of any mutual fund in the world. And in the past 25 years, a portfolio of Vanguard’s actively managed funds outperformed the Wilshire 5000 (the total U.S. stock market index) by an average of 0.9 percent per year. This portfolio’s excellent performance has largely been due to a combination of good management coupled with low costs. Vanguard’s average expense ratio for actively managed funds is now 0.28 percent. Does this mean one should abandon passive investing and opt for low-cost, actively managed funds? Not at all! At the same time Vanguard Health Care was doing phenomenally well, Vanguard U.S. Growth was a disaster, turning in a shameful performance during the great bull market of the 1990s. It’s also important to keep in mind that investing in a health care fund is placing a sector bet. What if some unforeseen event happens that depresses the market for health care stocks? Do you want to have most of your eggs in that basket? We think not. Another important point to keep in mind: It’s common for actively managed funds to have great before-tax returns and not-so-great after-tax returns, due to the trading that goes on in actively managing the funds. For that reason, we recommend keeping any actively managed funds in tax-deferred or tax-free accounts, such as 401( k) s, SEPs, Keoghs, or Roth IRAs. By placing your money in actively managed, low-cost funds, there is the possibility of getting greater returns. Nevertheless, it’s important to realize that you are taking a greater risk with the accompanying possibility of greater loss. There’s no free lunch. That’s why we recommend placing the bulk, or all, of your investments in index funds. (bold added)

Larimore, Taylor; Lindauer, Mel; LeBoeuf, Michael (2014-08-04). The Bogleheads' Guide to Investing (Kindle Locations 2365-2383). Wiley. Kindle Edition.

Although most of our investments are in index funds, our actively managed funds include Primecap, International Growth and Intermediate-Term Tax-Exempt Bond funds. :happy
Many years ago I owned U.S. Growth. :(

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Toons
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Re: Boglehead approved actively managed funds!

Post by Toons » Sat Jun 03, 2017 9:19 pm

Welleslly
Wellington
Primecap Core(closed)
Primecap(Closed)
Star
:happy
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infotrader
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Re: Boglehead approved actively managed funds!

Post by infotrader » Sat Jun 03, 2017 9:48 pm

How about VHCOX Vanguard Horizon Capital Opportunities

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TomatoTomahto
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Re: Boglehead approved actively managed funds!

Post by TomatoTomahto » Sat Jun 03, 2017 9:54 pm

Jack FFR1846 wrote:I doubt you'll get a universally agreed answer here. For me, the answer is "none" and I am amazed by 2 big things I hear from Bogleheads:

1) Many love Wellington and Wellsley
2) Many justify buying a $100k Tesla Model S

I don't get why.....for either of these.
Re 1: my active fund of choice is PRIMECAP, but I used to own the W funds back in the day.
Re 2: Justify? Livesoft's Rule says that I can afford a Tesla, but I chose a Model X rather than an S.
Re why: cuz. I don't rain on your parade, please don't rain on mine.

sweeden22
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Re: Boglehead approved actively managed funds!

Post by sweeden22 » Sun Jun 04, 2017 4:20 am

All of the PRIMECAP (closed funds at Vanguard). Furthermore, the ones sold directly by PRIMECAP (2 of the 3 are open).

Dodge & Cox Stock plus Dodge & Cox International are fine if they are in your 401k, but the stock fund is value focused and won't perform as well in these strong bull markets (compared to say Vanguard Total Stock Market), again, based on some past performance which you are not suppose to consider. I have a little in each of those because they are offered through work.

If your 401k has the institutional version of American Funds Growth Fund of America (R Class) - RGAGX, this is fine as it is close to being an index fund with a little 10 percent international to spice it up. The expense ratio is 0.33, pretty low. However, the version you buy direct yourself or through a broker has much higher fees and loads, so only this institutional class is acceptable.

Many of the Vanguard active management are fine in that their expense ratios are at least low.

Due to what my work offers, 50 percent of my work account is active management (with low fees). 100 percent of my Roth IRA is passive. I enjoy following how the active funds I am forced to use perform compared to my passive ones. They do pretty well most of the time.

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grabiner
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Re: Boglehead approved actively managed funds!

Post by grabiner » Sun Jun 04, 2017 12:04 pm

Slinky wrote:What low cost, low turnover stock and bond funds(if any) fall into the Boglehead philosophy if you wanted 5-10% of your portfolio to be actively managed?
Any low-cost fund which fits your investment needs is fine in an IRA; in a taxable account, a non-index stock fund loses its low cost. (Even low-turnover funds will eventually turn things over, particularly when they change managers; PRIMECAP investors have gotten hit with large tax bills.)

I have held several Vanguard actively managed funds when they were the best to meet my needs, plus one mistake when I got started (International Growth in a taxable account). My own choices:

Growth and Income to start my IRA (at the time, lower cost than the index funds, which had a $10 fee on investments under $10,000)
Windsor in an employer plan (better value exposure than Value Index)
International Explorer in my Roth IRA (less expensive than the non-Vanguard ETFs at the time; switched to Vanguard's ETF when it became lower cost)
Wiki David Grabiner

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ruralavalon
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Re: Boglehead approved actively managed funds!

Post by ruralavalon » Sun Jun 04, 2017 12:11 pm

slinky wrote:What low cost, low turnover stock and bond funds(if any) fall into the Boglehead philosophy if you wanted 5-10% of your portfolio to be actively managed?
In general I prefer a good index fund whenever available.

A) Domestic Stocks
Dodge & Cox Stock, DODGX, ER 0.52%
T. Rowe Price Equity Income, PRFDX, ER 0.67%
Invesco Diversified Dividend R5 or (DDFIX) or R6 (LCEFX) ER 0.57 or 0.48%
American Beacon Lg Cap Value AMR (AAGAX) ER 0.32%
American Funds Washington Mutual R5 (RWMFX) or R6 (RWMGX) ER 0.35% or 0.30%
American Funds American Mutual R5 (RMFFX) or R6 (RGAGX), ER 0.36 or 0.26%

B) International Stocks
Dodge & Cox International Stock, DODFX, ER 0.64%
Harbor International Institutional, HAINX, ER 0.64%
American Funds EuroPacific Growth R6 RERGX, ER 0.49%

C) Bonds
PIMCO Total Return Institutional, PTTRX, ER 0.46%
Dodge & Cox Income, DODIX, ER 0.43%
Metropolitan West Total Return Bond M, MWTRX, ER 0.64%
Loomis Sayles Investment Grade Bond Y, LSIIX, ER 0.58%
Loomis Sayles Investment Grade F/I, LSIGX, ER 0.47%
Loomis Sayles Bond Instl, LSBDX, er 0.63%

D) Balanced
T. Rowe Price Capital Appreciation, PRWCX, ER 0.71%
Dodge & Cox Balanced, DODBX. ER 0.53

"Good active funds to use in 401ks w/o index funds?"
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weltschmerz
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Re: Boglehead approved actively managed funds!

Post by weltschmerz » Sun Jun 04, 2017 5:08 pm

The Vanguard PRIMECAP funds certainly seem worthy of consideration. They seem to consistently beat the Total Market, and the fact that they are closed to most new investors should help them avoid the asset bloat that dooms a lot of successful funds.

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MnD
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Re: Boglehead approved actively managed funds!

Post by MnD » Sun Jun 04, 2017 5:51 pm

We have 20% of our portfolio in four Dodge and Cox funds (Stock, International Stock, Income and Global Bond).
78% is indexed and 2% in individual stocks.

https://www.fool.com/investing/general/ ... tions.aspx
JOHN "JACK" BOGLE:

Well, I'm not sure above average is quite the standard. That's a really tough standard to meet — but you can do a perfectly good job. The managers I like — and I don't hesitate to say who they are — you can look at Dodge & Cox and you can look at Longleaf and there are probably a number of other small firms.

What's so good about them? They are in the business of investing management and not in the business of marketing. This has become a great, big marketing business. They stick to their guns and they manage money. They slip. They stumble. They err. They make mistakes. This is a business, for all that. But in the long run, I would bet on someone whose business is trying to be a professional investor — not a trader — someone whose business is trying to serve you rather than serve the marketplace.

There aren't a lot of them — and I don't want to put a curse on them — because they'll get too big and they won't be able to do it anymore. That's one of the great secrets of this business — and that is if you're really good for a long-enough time, you'd draw out an awful amount of money and then you can't be good anymore.

Dottie57
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Re: Boglehead approved actively managed funds!

Post by Dottie57 » Sun Jun 04, 2017 7:28 pm

CyberBob wrote:Jack Bogle has mentioned Dodge & Cox and Longleaf Partners.

I have Dodge & Cox Income in my 401k and it has done generally well.

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