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The keys to active management success


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Keys to improving the odds of active management success

Research paper

1 Source: Vanguard. Data as of December 31, 2015.

2 Successful funds are those that survived for the 15 years and also outperformed their prospectus benchmarks.

3 Data are as of December 31, 2015. Our analysis was based on expenses and fund returns for active equity funds available to U.S. investors at the start of the period. The oldest and lowest-cost share class was used to represent a fund when multiple share classes existed. Each fund’s performance was compared with that of its prospectus benchmark. Funds that were merged or liquidated were considered underperformers for the purpose of this analysis. The following fund categories were included: small-cap value, small-cap growth, small-cap blend, mid-cap value, mid-cap growth, mid-cap blend, large-cap value, large-cap growth, and large-cap blend. Sources: Vanguard calculations, based on data from Morningstar, Inc.

4 Daniel W. Wallick, Brian R. Wimmer, and James Balsamo, 2015. Keys to improving the odds of active management success. Valley Forge, Pa.: The Vanguard Group.

5 Data are as of December 31, 2015. Because of expenses, most index funds also underperform their benchmarks. Our analysis was based on expenses and fund returns for active equity funds available to U.S. investors at the start of each period. The oldest and lowest-cost share class was used to represent a fund when multiple share classes existed. Each fund’s performance was compared with that of its prospectus benchmark. Funds that were merged or liquidated were considered underperformers for the purposes of this analysis. The following fund categories were included: small-cap value, small-cap growth, small-cap blend, mid-cap value, mid-cap growth, mid-cap blend, large-cap value, large-cap growth, and large-cap blend. Sources: Vanguard calculations, based on data from Morningstar, Inc.

6 Sources: Vanguard and Lipper, a Thomson Reuters Company. Data as of December 31, 2015.

7 Source: The average Vanguard fund expense ratio calculation is an equal-weighted average of all share classes. The average index fund and active fund expense ratio calculations are equal-weighted averages of all share classes of non-Vanguard index funds and active funds domiciled in the United States. (Vanguard calculations, based on data from Morningstar, Inc., data as of January 2016)

8 For the one-year period, 10 of 10 money market funds, 40 of 44 bond funds, 19 of 22 balanced funds, and 41 of 47 stock funds, or 110 of 123 Vanguard funds outperformed their peer-group averages. For the three-year period, 10 of 10 money market funds, 41 of 44 bond funds, 20 of 22 balanced funds, and 42 of 45 stock funds, or 113 of 121 Vanguard funds outperformed their peer-group averages. For the five-year period, 10 of 10 money market funds, 38 of 44 bond funds, 19 of 21 balanced funds, and 41 of 45 stock funds, or 108 of 120 Vanguard funds outperformed their peer-group averages. For the ten-year period, 10 of 10 money market funds, 42 of 44 bond funds, 14 of 14 balanced funds, and 38 of 39 stock funds, or 104 of 107 Vanguard funds outperformed their peer-group averages. Results will vary for other time periods. Only funds with a minimum one-, three-, five-, or ten-year history, respectively, were included in the comparison. Source: Lipper, a Thomson Reuters Company. Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at vanguard.com/performance.

Notes:
For more information about Vanguard funds, visit vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

All investments are subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. There may be other material differences between products that must be considered prior to investing.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

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