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wealthtrack--actively vs passively managed mutual funds
ACTIVELY MANAGED FUNDS VS. PASSIVE INDEX FUNDS June 22, 2013 Two seasoned investment pros argue the case for and against actively managed funds versus passive index funds. In a surprising twist, Vanguard principal Daniel Wallick presents the active management case while award-winning financial advisor Gregg Fisher defends the passive approach.
Thank you for the reference to the recent WealthTrack contribution to the active-passive investment management debate. The WealthTrack addition will certainly not end that debate, but it does offer a few interesting perspectives, especially from the Vanguard side.
To put my comments in proper context, understand that I hold both passive and active mutual fund products, and definitely adhere to the low cost matters policy advocated by Vanguard. I invest from a long-term time horizon and trade infrequently with a portfolio turnover rate of under 10 % annually. To illustrate, I have held one actively managed balanced mutual fund for 28 years.
From my outlook, the key takeaway from the presentation centered around the decision to change active management , or its equivalent, the fund itself. Apparently, given a stable style, structure, and management personnel, Vanguard will be loyal to its active funds for over a decade to prove their strategy and mettle. Low costs and consistent policy commitment matter most to Vanguard, so they infrequently fire their selected active fund firms.
Another aspect of the long-term commitment to management addresses performance after any change decision. The Vanguard representative quoted statistics from an extensive academic study that probed the subsequent success of institutions when changing managers. Thousands of cases were examined. In general, fund firings revolved around poor recent performance; replacements were chosen because of superior recent performance.
The composite data demonstrated that the fired managers outperformed the replacement managers for the three year period following the decision date. Once again, reversion to the mean ruled.
Here is the Link to the Vanguard active study document. After reaching the site please complete the process by clicking on the highlighted “view pdf” marker:
Enjoy the report. If you’re so inclined, this report provides guidelines on what elements to consider when making an active-passive tradeoff decision for your special purposes.
Keep firmly in mind the challenges embedded in the active decision. There is a double whammy, a double hurdle that needs to be overcome. Statistically, only about 30 % of active managers outperform their benchmarks in the short run, and that percentage decreases over a longer time horizon. The second hurdle is that even institutions suffer afterwards because of the pervasive regression to the mean pull.
So be very judicious when making the fund change decision. The odds are not likely to your advantage.
Comments
Thank you for the reference to the recent WealthTrack contribution to the active-passive investment management debate. The WealthTrack addition will certainly not end that debate, but it does offer a few interesting perspectives, especially from the Vanguard side.
To put my comments in proper context, understand that I hold both passive and active mutual fund products, and definitely adhere to the low cost matters policy advocated by Vanguard. I invest from a long-term time horizon and trade infrequently with a portfolio turnover rate of under 10 % annually. To illustrate, I have held one actively managed balanced mutual fund for 28 years.
From my outlook, the key takeaway from the presentation centered around the decision to change active management , or its equivalent, the fund itself. Apparently, given a stable style, structure, and management personnel, Vanguard will be loyal to its active funds for over a decade to prove their strategy and mettle. Low costs and consistent policy commitment matter most to Vanguard, so they infrequently fire their selected active fund firms.
Another aspect of the long-term commitment to management addresses performance after any change decision. The Vanguard representative quoted statistics from an extensive academic study that probed the subsequent success of institutions when changing managers. Thousands of cases were examined. In general, fund firings revolved around poor recent performance; replacements were chosen because of superior recent performance.
The composite data demonstrated that the fired managers outperformed the replacement managers for the three year period following the decision date. Once again, reversion to the mean ruled.
Here is the Link to the Vanguard active study document. After reaching the site please complete the process by clicking on the highlighted “view pdf” marker:
https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvResActiveParadox
Enjoy the report. If you’re so inclined, this report provides guidelines on what elements to consider when making an active-passive tradeoff decision for your special purposes.
Keep firmly in mind the challenges embedded in the active decision. There is a double whammy, a double hurdle that needs to be overcome. Statistically, only about 30 % of active managers outperform their benchmarks in the short run, and that percentage decreases over a longer time horizon. The second hurdle is that even institutions suffer afterwards because of the pervasive regression to the mean pull.
So be very judicious when making the fund change decision. The odds are not likely to your advantage.
Best Wishes.
poll: index vs etf