Learn how Vanguard active funds have performed over time


Vanguard investing experts Daniel Wallick and Dan Newhall explain that when purchasing an actively managed fund investors need to be comfortable with taking on additional risk in exchange for the potential that the fund will outperform the market.

Notes:
All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.
© 2016 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.  


TRANSCRIPT

Jon Cleborne: Well, and Vanguard’s had a fair amount of success. I mean, Daniel, we were talking about this beforehand. I think you got some charts that speak to this, we actually did get a question about. So Paramoid asks, “What percentage of Vanguard’s actively managed funds outperform the market over 10 and 20 years?” So I know you’ve got some research that’s looked at that.

Daniel Wallick: Right. So we have a chart that talks about performance in general. It doesn’t necessarily have that specific response to it, but we can certainly speak to that. So if we can pull up the return chart that can articulate this. So there’s a lot of information on this page, but let me try and explain that for everybody. So on the left-hand side, that bar is Vanguard active performance for the time period that’s on the chart, the middle bar is other active mutual fund providers, and the right-hand bar is index funds. And so you can see there’s a median point, right, there’s a middle point of what the broad experience on those funds would have been, and then there’s a top and a bottom. That’s the full range of what your experience would have been if you had picked those funds. And a couple points are important about this chart. One is if you look at indexing first, right, so it slightly underperforms the benchmark, which is what it’s supposed to do because it’s the benchmark minus a little bit of fee that it takes to deliver that and the distribution of results. Right, the range of results is very, very close. So you sort of know what you’re getting with the index fund. On the active side, you can see that the median expense ratio for Vanguard is positive. So it’s over 1% for this time period. Again, very time-period dependent. And for the average or non-Vanguard active, it’s actually a negative number. But then there’s a range of results around that. And that’s really the key question around active management, right? It’s are you willing to live with that potential variability of results for the possibility of outperformance? And that’s really a result. Dan, I don’t know if you have a sense of the percentage of funds outperforming over the last 10 or 20 years?

Dan Newhall: Well, it’s been so—

Daniel Wallick: On a count basis.

Dan Newhall: Well, it depends how you want to count it; but when I think about today Vanguard’s 35 active equity and balanced funds—that would include Vanguard Wellington and Vanguard Wellesley—over time the vast majority of those 35 funds have outperformed their average peer. And two-thirds or so have outperformed their respective indexes, so each fund has its own target index that it’s trying to outperform, and about two-thirds.* And then so I think if you bought that entire portfolio, you know, and this would be a debate, as well, which one would you pick, I mean, arguably you could buy the portfolio of Vanguard active funds, and you’d do well, and then you wouldn’t have to get into the issue of well, which one. Because, yes, in any given period, as you said, there’s a range of outcomes. And in any year there will be a fund that looks really good usually and then some funds that don’t look very good. We’re looking at that picture right now of Vanguard funds. But over time, and our goal is that over 10 or 20 or 30 years, ideally, there’s a benefit, a material benefit that our investors enjoy. And there’s some truly notable funds, if you think about a Vanguard PRIMECAP Fund or a Vanguard Wellington Fund or a Vanguard Health Care Fund, that have added a tremendous amount of value to our investors. There are a few, on the other hand, that have been somewhat disappointments. But even those disappointments, one of the nice things I think about our model is, we’re still trying to get it right, and we’ll make adjustments. And our average investor doesn’t actually have to move funds if we have a process, an ongoing, oversight process and a discipline with every fund and manager of review. And if a fund actually isn’t firing on all cylinders, if you will, we’ll make adjustments or make changes to the management team to ideally set it on the right course.


*Source: Vanguard and Lipper, a Thomson Reuters Company. 83% of Vanguard’s active equity and balanced funds outperformed their peer group average during the 10-year period ending January 31, 2016. 69% of Vanguard’s active equity and balanced funds have outperformed their benchmark gross of fees during the 10-year-period ending January 31, 2016.

Important information

All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.

© 2016 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.