FYI: John C. Bogle: “Well I don’t run Vanguard any longer, but I will take plenty of responsibility for having those active funds in all of the years I ran it. And the answer to that is really a couple of things. One, a lot of investors, no matter how persuasive the case for indexing is, and it’s overpoweringly persuasive, just don’t quite get it. They want a little more activity. They want something to watch. Index funds, as you all know, are roughly as exciting as watching paint dry or maybe watching the grass grow. They create great returns but they’re not that exciting. So what we tried to do and what I tried to do personally was pick good managers, and that’s very, very hard to do. I want to be clear on that, and I have some hits and some runs and some errors in that category, have funds with multiple managers, so you get a much broader diversification, which is not unlike an index fund. . . . [for example, take] our Windsor II fund. It’s a large cap value fund. And it has five different managers. I think that’s the number now. And so you are going to tend to have a value average return for that fund. And then, actually, make sure you have the other two big advantages of indexing, or three really, no sales commissions, very low expense ratios, because I negotiated with all those advisors and got those fees as low as I could possibly get them, and hire advisors with low portfolio turnover. An article was done by some professors at Duke University about a year ago and they showed that our active managers in the life of the index fund actually did a hair better than the index fund. [Reinker and Tower (2005)]. On the other hand if we had started the comparison a little bit later, the active managers would have done a little bit worse. But I think it’s a valid strategy. What can I do and tell you? I’m still 80% indexed.” [Bogle (2006)].
As if by reply, Dan Wiener, editor of the FFSA Independent Guide to the
Vanguard Funds, writes:
“Vanguard wants you to ‘believe’ in indexing. Your faith in indexing is the cornerstone of their business. But it’s a lie. And your trust could cost you…plenty!. … Indexing doesn’t work for you. It works for them. The big famous Index funds at
1
Vanguard have chronically underperformed over the last few years, exposing conservative investors to the worst risks of bear markets. But Vanguard knows investors who plunk money into an index become “passive.” Their money goes “dead.” And Vanguard never has to worry about these clients getting antsy. Indexing is a great business—but it’s a lousy investment
Regards,
Ted
http://public.econ.duke.edu/Papers//PDF/0419CHAPTER_12_TOWER_working_paper_version.pdf
Comments
I only glanced at the conclusions section and the graphs.
This Duke academic study is essentially a wash relative to the active-passive fund management debate. It only considered a 10-year period that ended 6 years ago.
The Professors concluded that they saw no active advantage over passive Indexing. Some active managers marginally outperformed their Index while about the same number failed to do so. The Profs suggested a whatever comforts you approach.
Dan Wiener, the Vanguard follower, overstated his position. I have read several of his assessments, and he does a very exhaustive job. But his incentives make him a somewhat biased judge.
You might want to scan the report. Whatever Alphas ( excess returns) existed were small and unstable. In general, active managers generated Positive Alphas in the studies earlier years, but then produced negative Alphas in the study's last years.
No decision making findings in this inconclusive study.
Best Wishes.
Yup!
I reckon if he was an advocate of index funds, he subscribers and clients would diminish significantly.
Mona
Naturally this doesn't prove anything, but it doesn't encourage one to automatically index, either.
Regards,
Ted
Be thankful for the "watch-dog" approach from guys like Weiner...so you get both sides of the (sales) story........ unlike conventional News reporting
Both Bogle & Weiner present Their sides and promote their businesses (their Job)
....as it should be...