Vanguard Morgan growth fund

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Meaty
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Vanguard Morgan growth fund

Post by Meaty » Wed May 16, 2018 11:31 am

Why is TSM preferable to the vanguard Morgan growth fund? It’s outperformed TSM over the long term (and short and medium terms) and has a modest expense ratio (.27). I know it doesn’t capture as much of the market as TSM but is there a place in ones portfolio for this fund?

Thanks
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Oak&Elm
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Re: Vanguard Morgan growth fund

Post by Oak&Elm » Wed May 16, 2018 11:40 am

I see Vanguard has this identified as one of their Select Funds. I see nothing wrong with putting some of your money in a actively managed growth fund but you have to expect to lag the TSM some years.
Meaty, BTW cool avatar

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Meaty
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Re: Vanguard Morgan growth fund

Post by Meaty » Wed May 16, 2018 12:25 pm

Oak&Elm wrote:
Wed May 16, 2018 11:40 am
I see Vanguard has this identified as one of their Select Funds. I see nothing wrong with putting some of your money in a actively managed growth fund but you have to expect to lag the TSM some years.
Meaty, BTW cool avatar
Thanks!
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lack_ey
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Re: Vanguard Morgan growth fund

Post by lack_ey » Wed May 16, 2018 12:36 pm

Maybe, if you have extra tax-advantaged space and think their four managers in the aggregate can deliver alpha above costs, and you don't mind or want a growth tilted portfolio in U.S. stocks. In the last 10 years it's lost overall to the growth index fund, though that was from some prior years.

How much do you believe in these managers and why? What's your procedure for evaluating these things? Which attributes are favorable here but not in other funds? Would you balance this with value-tilted equities or do you prefer growth stocks? What performance would you expect here, and what would be a signal for you to give up on this fund?

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whodidntante
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Re: Vanguard Morgan growth fund

Post by whodidntante » Wed May 16, 2018 12:50 pm

You are performance chasing. Growth stocks have been all the rage recently, but value stocks have tended to beat growth stocks over a long time horizon. Google Fama French three factor model and you'll see that value was one of the factors they identified as a source of risk and return.

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Meaty
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Re: Vanguard Morgan growth fund

Post by Meaty » Wed May 16, 2018 1:07 pm

whodidntante wrote:
Wed May 16, 2018 12:50 pm
You are performance chasing. Growth stocks have been all the rage recently, but value stocks have tended to beat growth stocks over a long time horizon. Google Fama French three factor model and you'll see that value was one of the factors they identified as a source of risk and return.
How is it performance chasing? It’s outperformed TSM since inception
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Meaty
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Re: Vanguard Morgan growth fund

Post by Meaty » Wed May 16, 2018 1:09 pm

lack_ey wrote:
Wed May 16, 2018 12:36 pm
Maybe, if you have extra tax-advantaged space and think their four managers in the aggregate can deliver alpha above costs, and you don't mind or want a growth tilted portfolio in U.S. stocks. In the last 10 years it's lost overall to the growth index fund, though that was from some prior years.

How much do you believe in these managers and why? What's your procedure for evaluating these things? Which attributes are favorable here but not in other funds? Would you balance this with value-tilted equities or do you prefer growth stocks? What performance would you expect here, and what would be a signal for you to give up on this fund?
I’ll admit I don’t know anything about the fund managers but it has outperformed TSM since inception and averaged 10.5% since 1968. I know the mantra past performance doesn’t guarentee future returns but it seems reasonable to use previous performance as a guide
"Discipline equals Freedom" - Jocko Willink

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Re: Vanguard Morgan growth fund

Post by onourway » Wed May 16, 2018 1:14 pm

Meaty wrote:
Wed May 16, 2018 1:07 pm
How is it performance chasing? It’s outperformed TSM since inception
Because past results do not predict future results. Of all available funds, some must, by definition, out-perform their benchmark. Determining which of those has done so in the past is trivial. Determining which will do so in the future is essentially impossible. In fact past strong performance is more often than not a leading indicator of poor future performance.

It's a simple concept but surprisingly difficult for many investors to grasp. We really don't know what will happen in the future other than it will probably not look much like the past.

I would also comment that of all the funds one might choose to performance chase with, Morgan Growth isn't a particularly great one. It's been essentially dead even with the S&P 500 index since inception. If I were going to take a risk on out-performing the larger market, I'd look elsewhere.

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Re: Vanguard Morgan growth fund

Post by HoleInTheAir » Wed May 16, 2018 1:23 pm

I personally have a small position in Morgan Growth, along with the more commonly suggested funds like VTSAX, VBTLX, VTIAX. I use a mix of index funds to keep costs low, and then pick reasonably priced, solid active funds to round out my portfolio.

In my spreadsheet, I pull the data from Morningstar for their style box on each fund I have, and monitor the numbers there. I generally keep 60% of my domestic stock in large cap, and 40% in mid/small, so I weight mid/small heavier by a bit more than VTSAX does. So when you're holding these funds, just make sure you're not drifting away in a direction you don't want to.

I'm not advocating that these funds are superior to VTSAX, but if I can use some of these actively managed funds to increase my total return by 0.5% over my investing life, I would see it as a worthwhile move. Everyone may not want that complexity, but I don't mind.

Granted, Morgan Growth is a smaller position. I favor anything PRIMECAP personally, but only two of those are open to most all investors.

My 0.02

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Re: Vanguard Morgan growth fund

Post by Grt2bOutdoors » Wed May 16, 2018 2:12 pm

What is the performance of Tax Managed Small Cap vs. Morgan Growth Fund?
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Meaty
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Re: Vanguard Morgan growth fund

Post by Meaty » Wed May 16, 2018 2:24 pm

HoleInTheAir wrote:
Wed May 16, 2018 1:23 pm
I personally have a small position in Morgan Growth, along with the more commonly suggested funds like VTSAX, VBTLX, VTIAX. I use a mix of index funds to keep costs low, and then pick reasonably priced, solid active funds to round out my portfolio.

In my spreadsheet, I pull the data from Morningstar for their style box on each fund I have, and monitor the numbers there. I generally keep 60% of my domestic stock in large cap, and 40% in mid/small, so I weight mid/small heavier by a bit more than VTSAX does. So when you're holding these funds, just make sure you're not drifting away in a direction you don't want to.

I'm not advocating that these funds are superior to VTSAX, but if I can use some of these actively managed funds to increase my total return by 0.5% over my investing life, I would see it as a worthwhile move. Everyone may not want that complexity, but I don't mind.

Granted, Morgan Growth is a smaller position. I favor anything PRIMECAP personally, but only two of those are open to most all investors.

My 0.02
Thanks. That is my thought process; allocating a portion of my Roth to (hopefully) realize a ~.5 lift over TSM over the long term. Given fund performance over past decades, it seemed reasonable
"Discipline equals Freedom" - Jocko Willink

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Re: Vanguard Morgan growth fund

Post by HoleInTheAir » Wed May 16, 2018 2:36 pm

Good deal. The only other thing to keep in mind is the construct of some of these active funds. If you look at the Portfolio page for some of these funds, you'll see that some hold as much 10-15% in international, and another 5-10% in cash, so they're not usually 100% in domestic stock (or close to) like the Index products, such as VTSAX. Just work that into your tracking and account for it as you allocate to bonds, international stock, etc.

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Re: Vanguard Morgan growth fund

Post by nisiprius » Wed May 16, 2018 3:22 pm

Meaty wrote:
Wed May 16, 2018 11:31 am
Why is TSM preferable to the vanguard Morgan growth fund? It’s outperformed TSM over the long term (and short and medium terms) and has a modest expense ratio (.27). I know it doesn’t capture as much of the market as TSM but is there a place in ones portfolio for this fund?

Thanks
Looking only at return without looking at risk is a common mistake. Looking at the lifetime of the Vanguard Total Stock Market Index Fund, using PortfolioVisualizer. "Portfolio" 1, blue, is 100% Vanguard Morgan Growth. Portfolio 2, red, is Vanguard Total Stock Market Index Fund.

Source
Image

Over this time period, the return of the Morgan fund was higher: final value $102,764 versus $99,105, CAGR (average return) 9.63% versus 9.48%.

However, the standard deviation, which is one measure of volatility and one aspect of risk, was higher, too, 16.17% versus 14.49%.

The Sharpe ratio, which is a measure of risk-adjusted return, was lower for the Morgan fund, 0.50 versus 0.54. That means that once you take risk into account, the advantage vanished. The higher return of the Morgan fund was just reward for taking higher risk, and in fact the extra reward didn't justify the extra risk.

Now in reality, these are all tiny differences and if you play around you will find they are all very endpoint-dependent. In general, though, the Morgan fund had slightly higher risk and slightly higher reward, and the superiority is illusory and pretty much goes away once you factor in risk.

But if I am willing to take more risk to get more return, shouldn't I prefer the Morgan fund? The answer in almost any balanced portfolio that includes bonds is no. If you want to take more risk in order to get more return, you would be better off doing it just by increasing your allocation to Total Stock than by substituting the Morgan fund for Total Stock.

Another factor to consider (pun) is that Morgan Growth is, as its name suggests, in the "large growth" style box and you will find that most "factor investing" mavens believe that you would be better served with a value tilt than a growth tilt... but since I'm not a factor investor I won't be the one to go down that rabbit hole.
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Meaty
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Re: Vanguard Morgan growth fund

Post by Meaty » Wed May 16, 2018 3:26 pm

nisiprius wrote:
Wed May 16, 2018 3:22 pm
Meaty wrote:
Wed May 16, 2018 11:31 am
Why is TSM preferable to the vanguard Morgan growth fund? It’s outperformed TSM over the long term (and short and medium terms) and has a modest expense ratio (.27). I know it doesn’t capture as much of the market as TSM but is there a place in ones portfolio for this fund?

Thanks
Looking only at return without looking at risk is a common mistake. Looking at the lifetime of the Vanguard Total Stock Market Index Fund, using PortfolioVisualizer. "Portfolio" 1, blue, is 100% Vanguard Morgan Growth. Portfolio 2, red, is Vanguard Total Stock Market Index Fund.

Source
Image

Over this time period, the return of the Morgan fund was higher: final value $102,764 versus $99,105, CAGR (average return) 9.63% versus 9.48%.

However, the standard deviation, which is one measure of volatility and one aspect of risk, was higher, too, 16.17% versus 14.49%.

The Sharpe ratio, which is a measure of risk-adjusted return, was lower for the Morgan fund, 0.50 versus 0.54. That means that once you take risk into account, the advantage vanished. The higher return of the Morgan fund was just reward for taking higher risk, and in fact the extra reward didn't justify the extra risk.

Now in reality, these are all tiny differences and if you play around you will find they are all very endpoint-dependent. In general, though, the Morgan fund had slightly higher risk and slightly higher reward, and the superiority is illusory and pretty much goes away once you factor in risk.

But if I am willing to take more risk to get more return, shouldn't I prefer the Morgan fund? The answer in almost any balanced portfolio that includes bonds is no. If you want to take more risk in order to get more return, you would be better off doing it just by increasing your allocation to Total Stock than by substituting the Morgan fund for Total Stock.

Another factor to consider (pun) is that Morgan Growth is, as its name suggests, in the "large growth" style box and you will find that most "factor investing" mavens believe that you would be better served with a value tilt than a growth tilt... but since I'm not a factor investor I won't be the one to go down that rabbit hole.
Thank you for the excellent feedback. Maximizing risk adjusted return is the goal; sounds like sticking with TSM might be better
"Discipline equals Freedom" - Jocko Willink

MotoTrojan
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Re: Vanguard Morgan growth fund

Post by MotoTrojan » Wed May 16, 2018 3:26 pm

100% Small-value by your logic would make the most sense and be indexed too.

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