Vanguard believes in active management

December 7, 2018 (originally published November 21, 2017)

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Percentage of Vanguard active funds whose returns beat their peer-group averages, periods ended June 30, 2018.¹

Performance pie charts
Active assets

account for roughly 30% of all Vanguard assets.

Active assets graph
Invested in active funds

More than $1 trillion in assets under management are invested in 80 active U.S. and international/global funds across a wide range of categories.²

Invested in active funds graphic
For successful active management performance, you need . . .

Vanguard's culture, scale, and long-term pay structure have allowed for adept hiring of external advisors. The Wellington™ Fund originated in 1929.

Our internal and external active portfolio managers, in order of tenure

Active portfolio managers graphic

Active assets (including money market funds):

27 external advisors

Patience is necessary: Even the most successful funds can experience frequent or extended periods of underperformance.

Of the 8,738 active equity funds in existence at the start of 2003, 983 were “successful.” But of those, 976 underperformed in at least 4 out of the 15 years ended December 31, 2017, and 533 had at least 3 consecutive years of underperformance.³

Underperformance bar chart
Underperformance bar chart
Tenure bar chart
Tenure bar chart

Some argue higher costs indicate more skilled management. Our results suggest otherwise. We find no relationship between cost and gross alpha, but there is a clear negative relationship between cost and net alpha because alpha consistently decreases as the expense ratio increases.⁴

Percentage of actively managed equity funds that outperformed their benchmarks, periods ended June 30, 2018.⁵

Actively managed equity funds bar chart
Actively managed equity funds bar chart