Topping Barron's active fund charts once again

March 11, 2021

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The year 2020 joins 1929, 1987, 2000, and 2008 as periods that truly tested the mettle of active fund managers. But 2020 was unique in that the financial markets saw both lows and highs, with a steep drop in March followed by a remarkably rapid recovery.

Despite that extra volatility, Vanguard's active managers were still able to deliver value to our investors, and those efforts were acknowledged once again in a high ranking from Barron's Best Fund Families of 2020.

Vanguard is the only firm to rank among the top 10 for one-year performance four years straight—essentially the entire period that Barron's restricted its annual rankings to actively managed funds only. (Before 2017, the report included both active and index funds.)

This consistency extends to longer-term records as well, as Vanguard's combination of talent, discipline, and unique structural alignment to clients continues to help drive stellar results for our fund shareholders:

  • For the fourth straight year, Vanguard ranked number one for five-year performance.
  • For the third time in four years, Vanguard ranked first for 10-year performance.

The Barron's report cited several Vanguard funds by name across asset classes and noted that 83% of Vanguard's active fixed income funds beat their benchmarks in 2020.* It also noted that 2020 was unusual in another sense, with several funds managing to deliver higher returns with less risk. This is exactly what our active fixed income aims to do.

But whether equity or fixed income, active or passive, patience is the key for long-term success for both asset manager and investor.

Learn more about Vanguard's approach to active strategies overall or active fixed income in particular. Click here for Barron's 2020 rankings.

How Barron's ranks the fund families

Barron's aim is to measure manager skill, independent of expenses beyond annual management fees. It calculates returns before any 12b-1 fees are deducted. Similarly, fund loads, or sales charges, aren't included in the calculation of returns.

Each fund's performance is measured against all of the other funds in its Refinitiv Lipper category, with a percentile ranking of 100 being the highest and 1 the lowest. This result is then weighted by asset size, relative to the fund family's other assets in its general classification. If a family's biggest funds do well, that boosts its overall ranking; poor performance in its biggest funds hurts a firm's ranking.

To be included in the ranking, a firm must have at least three funds in the general equity category: one world equity, one mixed equity (such as a balanced or target-date fund), two taxable bond funds, and one national tax-exempt bond fund.

Single-sector and country equity funds are factored into the ranking as general equity. It excludes all passive index funds, including pure index, enhanced index, and index-based, but includes actively managed ETFs and so-called smart-beta ETFs, which are passively managed but created from active strategies.

Finally, the score is multiplied by the weighting of its general classification, as determined by the entire Lipper universe of funds. The category weightings for the one-year results in 2020 were general equity, 35.6%; mixed asset, 20.7%; world equity, 17.3%; taxable bond, 21.9%; and tax-exempt bond, 4.8%.

The category weightings for the five-year results were general equity, 36.2%; mixed asset, 20.9%; world equity, 16.9%; taxable bond, 21.6%; and tax-exempt bond, 4.4%. For the 10-year list, they were general equity, 37.5%; mixed asset, 19.5%; world equity, 17.3%; taxable bond, 20.8%; and tax-exempt bond, 4.8%.

The scoring: Say a fund in the general U.S. equity category has $500 million in assets, accounting for half of the firm's assets in that category, and its performance lands it in the 75th percentile for the category. The first calculation would be 75 times 0.5, which comes to 37.5. That score is then multiplied by 35.6%, general equity's overall weighting in Lipper's universe. So it would be 37.5 times 0.356, which equals 13.35. Similar calculations are done for each fund in the Barron's study. Then the numbers are added for each category and overall. The shop with the highest total score wins. The same process is repeated to determine the five- and 10-year rankings.

Source: Barron's Best Fund Families of 2020, posted February 19, 2021.

*As of December 31, 2020. Results will vary for other time periods. For the most recent quarter-end or month-end returns of Vanguard's actively managed fixed income funds, click here. 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.

Notes:

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