v active management
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V Active ManagementTRANSCRIPT
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1Active ManagementThe Vanguard
Way
Buy The Manager, Not The Fund
Partnering with Vanguards Top Guns, Who Says You Cant Beat
the Indexes?
Buy The Manager, Not The Fund
Mutual Fund Names Do Investors A Disservice
Strategic, Growth, Opportunity, Aggressive, Value, Contrarian, Low, High, World, Yield
Whats Critical Is The Person Whos Pulling The Trigger
Even Vanguard Can Hire Lousy Managers, And They Have
What Makes A Top Gun Manager?
Longevity I like a long track record, no flashes in the pan
Experience Investing in both bull and bear markets Consistency Steady outperformance, not one great
year Strong back-up Good analysts/partners able to
step in and take over Willingness to admitand learn frommistakes Antipathy to the flavor of the month investment
style
Finally I dont like too many cooks in the kitchen
Some Top Guns In The Stock-Picking Business
Joel Fried, Al Mordecai and team at PRIMECAP Management PRIMECAP Odyssey Aggressive Growth (POAGX), PRIMECAP
Odyssey Growth (POGRX), PRIMECAP Odyssey Stock (POSKX) and Vanguard Capital Opportunity (VHCOX)
Don Kilbride, Wellington Management Vanguard Dividend Growth (VDIGX)
Jim Barrow & Mark Giambrone, Barrow, Hanley et al Vanguard Selected Value (VASVX)
Jean Hynes and team at Wellington Management Vanguard Health Care (VGHCX) and Hartford Healthcare
(HGHAX)
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2Relative Return Graphs Allow You to Compare Performance Over Any Period
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U.S. Stocks vs. U.S. Bonds
U.S. Stocks vs. Foreign Stocks
U.S. Stocks were 41.5% better than
Bonds
U.S. Stocks were 11.7% worse than
Foreign stocks
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U.S. Stocks vs. U.S. Bonds
U.S. Stocks vs. Foreign Stocks
The Same Comparison from 2008 through 2013
U.S. Stocks were fractionally better
than Bonds
U.S. Stocks were 40% better than Foreign Stocks
Mountain Charts Confirm What Relative Performance Graphs Illustrate
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Total Bond Market Index
Total International Index
Total Stock Market Index
U.S. Stocks were 41.5% better than Bonds and
11.7% worse than Foreign Stocks
Capital Opportunity Has Put Index Funds To Shame
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Capital Opportunity vs. 500 Index
Capital Opportunity vs. MidCapGrowth Index
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3Good Management Compounds Wealth
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PRIMECAP Management's Capital Opportunity
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Odyssey Agg. Growth vs. Capital Opp.
Odyssey Growth vs. PRIMECAP
Top Guns Can Fly Lots of PlanesPRIMECAPs Odyssey Funds Are Great Substitutes
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Dividend Growth vs. 500 Index
Since Its 1992 Inception, Dividend Growth Has Lagged The Market
But Since Don Kilbride Took Over, Its A Different Story
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Kilbride's Dividend Growth vs. 500 Index
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4Kilbrides Dividend GrowthBetter Stock-Picking, Bigger Profits
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Kilbride's Dividend Growth
Selected Value vs. 500 Index
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Barrow Puts The Index Giant To Shame
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Barrow's Selected Value
The Ugly: U.S. Growth vs. 500 Index
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5The Manager Matters And Vanguard Picked a Stinker Here
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Dumb Diversification
Over-diversification of managers is not what investors are looking for
Vanguard Diversified Equity is a classic example a fund of 8 funds run by 18 firms with 42 named managers
= Dumbing Down Active Management
Too Many Managers = Dumb Diversification
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Vanguard Diversified Equity vs. Total Stock Market (line rises when Diversified Equity outperforms)
Fund launched -Prior returns estimated using component fund performance
You Dont Need 40 Managers to Build A Diversified Portfolio
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6A 22+-year Performance Track Record
5-year 10-year 20-year
Since Inception (12/1990)
Avg.AnnldRet.
Growth Model Portfolio 28.5% 158.8% 777.7% 1107.3% 11.8%
Conservative Growth Model
Portfolio30.0% 138.6% 517.8% 755.0% 10.1%
Income Model Portfolio 34.7% 99.5% 376.6% 548.2% 8.7%
Growth Index Model Portfolio 26.7% 152.9%
500 Index 28.3% 111.2% 427.5% 650.8% 9.4%
Total Bond Market Index 31.2% 61.8% 217.5% 311.5% 6.5%
Note: Returns are through 4/30/2013; multi-year periods show total returns. Growth Index Model Portfolios inception date is 3/1/1995.
Rolling Returns
1-year 3-year 5-year
Average Worst Average Worst Average WorstGrowth Model
Portfolio 12.6% -42.1% 11.5% -12.5% 11.2% -3.1%
Conservative Growth Model
Portfolio10.5% -37.3% 9.5% -10.7% 9.1% -2.9%
Income Model Portfolio 8.9% -27.3% 8.2% -7.8% 7.9% -2.2%
500 Index 10.2% -43.3% 8.8% -16.1% 8.2% -6.7%
Total Bond Market Index 6.6% -3.7% 6.3% 1.8% 6.3% 3.4%
Note: Table covers rolling periods from Models 12/31/1990 inception through 4/30/2013. Multi-year periods are annualized.
Diversification With Great ManagersWhat Lost Decade?
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Growth Model Portfolio vs. 500 Index
Conservative Growth Model vs. 500 Index
A Decade-Plus of Growth And A Decade of Outperformance
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Growth Model Portfolio
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7[Wieners portfolios]
average risk-adjusted
outperformance is substantial Wieners star is
his Growth portfolio.
Vanguard versus DFA & WisdomTree, and the Value Added by Dan Wiener, Edward Tower and Yichong Zhang, Duke University Department of Economics (2009)