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Morningstar FundInvestor
September 2
014
assuming that each of Vanguard’s merged or liqui-
dated funds was a relatively poor performer, the
active funds held their own.
Which raises the question: What about the other
major investment areas?
I first looked at allocation funds. There was a slight
advantage for active funds, with to my knowledge
one active fund disappearing during the time period
(Growth Allocation). The number of funds of each
type is given in the chart; obviously, in this case it is a
very small sample size indeed for the passive group!
Next, I looked at international-stock funds. The
advantage was larger here. In this case, an index fund
has disappeared (Developed Markets Index).
With taxable-bond funds, the indexes comfortably
won the contest. But the active funds were
plenty good.
One may object that Vanguard’s active funds assume
more risk. I don’t believe that to be the case. The
company’s actively managed funds are run cautiously,
often diversified among multiple managers.
Another objection is that while the averages may sort
themselves out for active management, investors do
not earn an average. They earn the return from a
single fund, the performance of which is not known in
advance. Thus, index funds are more attractive
because they do not deliver surprises, whereas the
unlucky active investor could land a spectacular dud.
This is a stronger argument, as evidenced by the case
of the disappearing active Vanguard U.S. stock funds.
Certainly, this is far from the final word on the
subject. Different time periods could be used, different
measures of success, different groupings. But it
seems unlikely that these changes would put very
cheap active funds and very cheap passive funds
(after all, this column didn’t use just any index funds,
it used the funds from the world leader) very far
apart. Both species of funds figure to fare well. The
question is, will active management heed the call?
œ
Contact John Rekenthaler at
27
29
Active Versus Passive Vanguard Allocation
Funds 15-Yr Category Ranking, by Total Return
70
60
50
40
30
20
10
Data through July 31, 2014. Source: Morningstar Data.
Active (8)
Passive (1)
31
22
Active Versus Passive Vanguard Taxable-Bond Funds
15-Yr Category Ranking, by Total Return
70
60
50
40
30
20
10
Data through July 31, 2014. Source: Morningstar Data.
Active (9)
Passive (3)
35
45
Active Versus Passive Vanguard Intl. Stock Funds
15-Yr Category Ranking, by Total Return
70
60
50
40
30
20
10
Data through July 31, 2014. Source: Morningstar Data.
Active (4)
Passive (4)
