Do Vanguard’s Indexes Beat Their Own Actively Managed Funds?

pied-piper

Vanguard founder, John Bogle, is investing’s Pied Piper. 

He first blew his pipe in 1976.  Things started slowly.  But eventually, legions followed him into index funds. 

Actively managed funds, he says, are mostly a waste of money.  They earn lower returns because their fees are higher. 

But Bogle owns at least one actively managed fund—and it has thrashed the market.

It’s called the Vanguard Windsor fund. If $10,000 were invested in it from August 1976 until March 3, 2015, it would have grown to $967,947 versus $581,814 for Vanguard’s S&P 500 index. 

Few people think of Vanguard as an actively managed mutual fund company.  But it has more active funds than index funds. 

Image courtesy of Pixabay

Read the rest of the article





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

You may also like...

11 Responses

  1. Darien says:

    Hi Andrew and everyone else on this financial journey,

    I’ve read the book, opened a Saxo account in USD and bought my first funds.
    However, something is confusing me. This is how my account stands today.

    VUSA (GBP) is up +2.5%
    VEUR (GBP) is up +4.87%
    IGLO (USD) is down -0.9%

    However, my account says that I’m breaking even on my original investment of $81 000.
    Is this due to the Dollar/Pound exchange rate fluctuating?
    I’m assuming that when the dollar weakens, I will see the real value increase?

    Or am I missing something?
    I originally wanted to buy all funds in USD as I earn USD, but Saxo doesn’t have the funds I wanted in USD.

    Any thoughts would be appreciated.

    Warm regards,
    Darien

    • Darien,

      I had similar concerns when seeing odd discrepancies with my Saxo account, shortly after opening it. Ask them about it. Their explanation was very convoluted when I asked, having to do with exchange rates during specific times of the day. I can rest your fears with one thing. Overall, the profit/loss data on my personal account is accurate after more than a year and a half with them. But it swings oddly with some ongoing currency calculations they make. This is a pretty odd brokerage, as I alluded to in my book. They really want you day trading. You can probably tell!

      Cheers,
      Andrew

  2. Darien says:

    Hi Andrew,

    Thanks for your response. After opening and account with Saxo I had a look at TD Direct.
    I could have bought all the funds in USD to avoid currency conversions.

    I calculated that I lost up to 276$ on one fund when converting USD to GBP on Saxo.
    Is there not a better (cheaper) way to do this as I will be buying every month.

    Alternatively, would it not make more sense having all my funds in USD (through TD Direct).
    Over 20 years this represent a large saving, would it not?

    Warm regards,
    Darien

    • Sure Darien, that makes sense, especially considering that TD Direct International has lowered its fees, while Saxo has done the opposite.

      • lucky mike says:

        follow up query on above – I have just opened a trading account with Saxo Bank but not actually transferred funds to it or traded yet. I want to invest in US$ denominated ETFs (as I’m paid & think in US$) traded outside the US exchanges (to avoid any inheritance or other tax exposures).

        a particular ETF I wanted to buy is Vanguard S&P 500 UCITS listed on the LSE – its actually listed in 2 versions, US$ denominated(ticker VUSD) and GBP denominated (ticker VUSA). while I understand the actual investment is in US$ (obviously, as its tracking the S&P500), buying the US$ denominated ETF avoids any exchange issues.

        however for some reason Saxo don’t offer the US$ denominated version of the ETF, only the GBP version.

        Noticed other anomalies with the Saxo trading platform – eg the Vanguard FTSE North America UCITS ETF on London is also dual currency US$/GBP, but in this case the SaxoBank search function only picks up the US$ denominated ETF (ticker VDNR) and not the GBP ETF (ticker VNRT).

        when I queried this with Saxo they came up with a variety of reasons (I had to ask several times…..), the final one being:-

        QUOTE
        The ETF in question is trading in dual currency that is USD and GBP.
        We already have GBP line on the platform, symbol code:- VUSA:xlon.
        Unfortunately we cannot add USD line as we cannot handle 2 currencies on 1 ISIN & on 1 exchange due to system limitations.
        UNQUOTE

        from checking the TD International website – although I haven’t opened an account with them – it appears TD do list (& therefore presumably allow you to purchase either of) the US$ or the GBP versions of the Vanguard S&P 500 UCITS ETF.

        so 2 questions for those smarter than me:-

        – why can TD Direct offer both denominations of the same ETF while Saxo can’t?
        – would I be better off forgetting the Saxo trading platform (which is somewhat overwhelming anyway – surely there’s a simpler way….) and going to TD Direct instead?

        • Lucky Mike,

          Here’s what I think…Saxo makes decent money each time you trade currencies, using its platform. For example, if you send them USD, and you buy a U.S. index off a British stock exchange, denominated in pounds, they get to make 0.5% spread on the currency conversion. I can see no other reason why they are so inflexible as to not have the USD denominated version available. Educated investors make choices with their feet. And when we do so, good things happen. TD Direct International, for example, now charges lower fees on their accounts, brokerage trading fees and otherwise. Investors were figuring out that better options were available. So TD made the change. If Saxo doesn’t figure this out, they will also suffer from a lack of new business. Smart investors choose brokerages that are willing to roll with the competitive times. If you go with TD Direct International, let Saxo know why you are making the switch. WHEN they change their policies at Saxo, it will help many people. And by calling telling them this (as I have already done) you will help to make a step towards that change. The more competitive these brokerages get with one another, the better off we all will be.

          Cheers,
          Andrew

  3. Darien says:

    Hi Mike and Andrew,

    As you can see from my post, I’ve had the same frustration with Saxo.
    Not being able to buy the S&P in USD as I earn in USD.

    My plan is too sell the VUSA and VEUR and buy VWRD which contains the S&P, UK, Europe, Japan, Emerging Markets.
    A minor setback, but I refuse to pay the currency charges each time I invest.

    Andrew, any thoughts on a 2 fund portfolio of VWRD and IGLO?
    Any need to add a 3rd equity fund for diversification?
    My only choice would be a South African Stock Market Index as VWRD includes UK?

    Thanks Andrew and best of luck Mike (are you based in the Gulf per chance?)

    Warm regards,
    Darien

  4. Toby says:

    Hi Darien,

    Another option for you to consider. Are you trying to avoid emerging markets? This could be done by using the iShares first world index IWDA on the London exchange. This charges 0.2% management fee. This is a re-investing ETF so it does not pay out dividends which is a bonus depending on how you view it. This ETF also trades as SWDA in GBP on the london exchange.

    Toby

Leave a Reply