How do actively managed funds differ from index funds?


How do actively managed funds differ from index funds? Vanguard investing experts Dan Newhall and Daniel Wallick discuss the key differences as well as Vanguard’s long history in the actively managed fund space.

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: Alright. Well, before we dive in, I think it’s important to just clarify when we say active management or actively managed funds, what are we talking about? So here we’re talking about funds whose managers are choosing specific investments with the aim of beating a market-based benchmark. And if they’re managing a stock portfolio, they’re going to seek to build a portfolio of stocks that will outperform a market benchmark like the S&P 500. If we’re discussing bonds, they might be trying to beat the Barclays aggregate benchmark. It’s not easy to do, and tonight we’ll talk about how to improve your odds of success. Our first question was reflected in many, many, many comments that were submitted prior to this webcast, which is, “Why is Vanguard talking about actively managed funds?” So, Dan, maybe I’ll throw that to you.

Dan Newhall: Yes, I think it’s a great place to start, Jon, and I think it’s a natural question because Vanguard has, of course, been a very vocal proponent of indexing. And in particularly the past ten years, you’ve seen a real acceleration of interest there, and Vanguard’s had a lot of success. But, you know, on the other hand, I think it’s a bit of a misconception that Vanguard and indexing are just synonymous, that Vanguard actually has deep roots in active management. I think for us the common thread is low cost. Mostly we’re passionate about low-cost, high-value investing. Indexing, in a sense, is the purest form of that in that you’re just trying to track your benchmark. You’re going to track your benchmark more closely the lower your expense ratio is. But we do believe in active management. We have, I think, an incredible array of actively managed funds. So I said deep roots in active management that go back to the founding establishment of the Vanguard Wellington™ fund in 1929. And, in fact, for many years in our 40-year existence, we were primarily an active fund shop. Today we have about a third of our assets or almost a trillion in actively managed strategies across equity, balanced, and fixed income, really making us one of the largest actively managed fund companies in the world.

Daniel Wallick: Yes, Jon, I’ve always thought that that’s the best-kept secret in all of investment management, that Vanguard has a trillion dollars of actively managed money.

Jon Cleborne: Alright, well, so maybe not so strange that we’re talking about active management after all.

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.