Vanguard Invades the UK

MJG

Hi Guys,

A few days ago I posted a piece, “Finding Active Manager Expertise”, that addressed the attributes that candidate active mutual fund managers should possess.

Here is the MFO internal Link to that piece:

http://www.mutualfundobserver.com/discussions-3/#/discussion/6956/finding-active-manager-expertise

I encouraged members to reply, and was disappointed by the lack of any responses.

Since my post took a positive active management position, I planned a second submittal to balance the debate with a positive passive fund management position. My own portfolio uses a mix of both active and passive products.

About a week ago I discovered a 54 minute film that is a proponent for the passive case. To my delight, the film was produced in Great Britain. It was assembled to illustrate the introduction and the growth of passive investing across the pond. It documents how Vanguard has invaded the United Kingdom.

The title of the work is “Passive Investing” The Evidence the Fund Management Industry Would Prefer You Not to See”. Here is the Link to the video:



The Brits have a wonderful way with words. Many of the US world of passive investment supporters are represented in brief interviews. These usual suspects almost obviously include John Bogle, Burton Malkiel, William Bernstein, Bill Sharpe, Ken French, Charles Ellis, and others who make significant commentary. Even Warren Buffett is quoted.

This anticipated group compose a formidable array to defend the passive investing approach. The video touches on the psychological benefits of passive Index holdings.

Enjoy the production. It makes a very persuasive argument. What do you think of its fairness and overarching conclusions?

Best Regards.

bee

This presentation actually took me longer to watch than the time a spent reading your commentary...a first I think. Thanks for both.

Dimensional Funds are great index funds but they are nearly impossible for the average investor to access. DFA requires potential investors to find an advisor (think fees) who will "sell" you dimensional funds.

A topic not covered in any depth is the concept between fundamental indexing verses market cap indexing.

Most of us would probably be better served by investments that mimic the investments offered to government employees... Thrift Savings Plan Life Cycle fund...Not only an index approach, but an index investment that automatically adjusts asset allocation over time...check out the embedded time elapsed video (link below) illustrating how life cycle funds change their internal allocation over time. There are many Life Cycle funds to choose from and are available through Vanguard, T. Rowe Price, Fidelity, American Century, USAA, etc.

TSP

GregFromBoston

A relatively low-cost way to get into Dimensional Funds is available through AssetBuilder (see http://assetbuilder.com), the investment house started by Scott Burns. You do not get to choose from the Dimensional Funds menu a la carte, but instead have to choose one of the predefined AssetBuilder portfolios. The funds are held by you at Schwab, with AssetBuilder authorized to do transactions on your behalf in your Schwab account. Assetbuilder management fees and trading costs at Schwab inevitably reduce returns a modest amount.

I have used one of the AssetBuilder portfolios as one "sleeve" of an income-generating, capital preservation type of portfolio. It turns out that over the past couple of years, the actively managed sleeves have done better. But I do not expect the active sleeves (using funds like VWIAX, FPACX, EXDAX) to have a permanent advantage.