MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Vanguard Funds Vs Vanguard Index Funds

beebee
edited August 2022 in Fund Discussions
Basic Math
William Sharpe’s arithmetic of active management is admirably direct: “After costs, the return on the actively managed dollar will be less than the average passively managed dollar,” wrote the good professor in 1991. “These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication, and division. Nothing else is required.”
But Many Vanguard managed fund quietly out perform many Vanguard ETFs

Comments

  • Sven
    edited August 2022
    Their expense ratios are quite reasonable. I am impartial to Wellington.
  • Observant1
    edited August 2022
    Vanguard is well-known for its passive index funds.
    However, it is also one of the largest managers of active funds.
    Vanguard's AUM for actively managed funds was more than $1.7 trillion as of February 28, 2022.
    Some of its mutual funds advised by Wellington, Primecap, and Baillie Gifford are quite attractive.
    Link
  • Old_JoeOld_Joe
    Yes, all of that stuff is true, but you guys really didn't address bee's implied question. (Don't look at me for any answers.) :)
  • Ben
    Taking a wild guess : yes the return on a single dollar will be more on a low fee passive fund than on a active fund. But if the active fund nets 10% return in a year that its passive near-equivalent nets 5%, you're gonna make more money with the investment in the active fund. Am I missing something?
  • johnNjohnN
    edited August 2022
    ...
  • msf
    Nothing else is required

    Something rather important is required. The assumption that active management costs more than passive management. If I manage my portfolio myself, I am actively managing my assets with 0.00% assessed management costs. OTOH, if I invest passively, I'm paying someone something to determine what is in my passive portfolio and/or to execute it, unless I rely on a published index and personally buy and sell securities to track the index.

    The full statement by Sharpe was that:
    If "active" and "passive" management styles are defined in sensible ways, it must be the case that

    (1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and

    (2) after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar.

    These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication and division. Nothing else is required.
    What may have appeared sensible in 1991 may not be so sensible in 2022. Now there are all sorts of esoteric high cost indexes and active ETFs having costs as low or sometimes lower than passive ETFs (e.g. the second and fourth lowest cost ultrashort term ETFs in M*'s table are actively managed - ICSH and VUSB).

    While it is likely true that actively managed dollars are still hit with higher fees (on average) than passively managed dollars, one can no longer show this merely by appealing to common sense as Sharpe did. (Though Sharpe did consider any fund actively managed if it did not cap-weight an entire market; thus, e.g. equal weighted index funds are by his definition actively managed.)

Sign In or Register to comment.