VTXVX vs TRRGX

[marko]

Vanguards's VTXVX vs TRRGX

As is the case most of the time, I may be out in the weeds on this, but here goes:

I've learned here that the Vanguard funds are favored due to their low expenses.

I looked into Vanguard's VTXVX (2015 fund) and compared it to TRPrice's TRRGX 2015 fund. (somewhat arbitrary in choice...just wanted something fairly comparable in fund goals)

Plotting the overall growth out over 1,3,5 and 10 years, TRRGX consistently beats VTXVX; not by a lot, but enough.

Sorry, I can't seem to copy/paste the M* chart that I used.

So, if fees are included in M*'s calculation of total return (as I believe they are), wouldn't paying the higher fee be worth the growth/gain?

Or am I not using the best comparison to TRRGX or VTXVX?

I'm sure I'm missing something and will be set straight by my friends here! Let's not get sidetracked into the wisdom of lifestyle funds...as noted these two just seemed to be somewhat similar.

 

[marko]

No takers?

 

[big-papa]

No takers?

I'll take a bite (but just a small one)
You might want to dig a bit deeper. Morningstar has some good reports on Target Date Funds. One of the things they look at is how stable the glidepaths are. It seems that some Target Date funds have changed their GlidePaths over time - that'll make backtesting problematic if it applies to either of those funds.

 

[marko]

I'll take a bite (but just a small one)
You might want to dig a bit deeper. Morningstar has some good reports on Target Date Funds. One of the things they look at is how stable the glidepaths are. It seems that some Target Date funds have changed their GlidePaths over time - that'll make backtesting problematic if it applies to either of those funds.

Ok. So now I moved away from the Target Funds and compared TRP's PRWCX against Vanguard's VWELX (fairly comparable from what I could find).

Similar result of VWELX slightly under performing. Trying to keep it apples/apples but I'm not entirely conversant with the Vanguard funds.

 

[clifp]

Ok. So now I moved away from the Target Funds and compared TRP's PRWCX against Vanguard's VWELX (fairly comparable from what I could find).

Similar result of VWELX slightly under performing. Trying to keep it apples/apples but I'm not entirely conversant with the Vanguard funds.

At first glance it seems very comparable to Wellington although you should be comparing the Admiral shares VWENX. The T.Rowe price fund does charge a full .5% more than Wellington, but it appears that it has a good long term managers.

 

[rbmrtn]

So, if fees are included in M*'s calculation of total return (as I believe they are), wouldn't paying the higher fee be worth the growth/gain?

Or am I not using the best comparison to TRRGX or VTXVX?

I'm sure I'm missing something and will be set straight by my friends here! Let's not get sidetracked into the wisdom of lifestyle funds...as noted these two just seemed to be somewhat similar.

Total returns are reported after expenses. When comparing two S&P index funds for example, the one with the lower expense ration should have a better total return. For managed funds, a good manager can outperform even with a higher expense ratio. The standard argument is they can't do it consistently over the long term.

The two funds you mentioned are both 2015 target but their portfolios are slightly different. TRRGX has few more % in stock which might give it a little more return.

 

[marko]

At first glance it seems very comparable to Wellington although you should be comparing the Admiral shares VWENX. The T.Rowe price fund does charge a full .5% more than Wellington, but it appears that it has a good long term managers.

Ok. I compared PRWCX (not TRRGX; not sure which comparison you mean) to VWENX and again came out with TRP outperforming over 1, 3, 5 and 10 years. Again, not by a lot, but enough.

I'm trying to justify a move to the Vanguard [-]cult[/-] family but not seeing an overwhelming reason if I want to stay in a similar group of funds.

 

[ERD50]

Ok. I compared PRWCX (not TRRGX; not sure which comparison you mean) to VWENX and again came out with TRP outperforming over 1, 3, 5 and 10 years. Again, not by a lot, but enough.

I'm trying to justify a move to the Vanguard [-]cult[/-] family but not seeing an overwhelming reason if I want to stay in a similar group of funds.

But as was pointed out, if a managed fund has even a bit more in stocks, they will outperform the other because stocks have been doing very well recently.

Maybe compare in both a bull and bear market? Here:

PerfCharts - StockCharts.com - Free Charts

Move the sliders from Nov 2007 to April 2009 - VG 'wins'
Move the sliders from April 2009 to present - TRP 'wins'

All else being equal, the lower expense ratio will provide more to the investor (as in the SPY example). But in managed funds, things aren't really equal, so who knows? But unless the manager can really get more value with less risk, those fees will hurt. And can they continue?

I don't think you can go far wrong with either, but I prefer the 'known', that lower fees should be more in my pocket than the 'unknown' of future manager performance.

-ERD50

 

[marko]

But as was pointed out, if a managed fund has even a bit more in stocks, they will outperform the other because stocks have been doing very well recently.

Maybe compare in both a bull and bear market? Here:

PerfCharts - StockCharts.com - Free Charts

Move the sliders from Nov 2007 to April 2009 - VG 'wins'
Move the sliders from April 2009 to present - TRP 'wins'

All else being equal, the lower expense ratio will provide more to the investor (as in the SPY example). But in managed funds, things aren't really equal, so who knows? But unless the manager can really get more value with less risk, those fees will hurt. And can they continue?

I don't think you can go far wrong with either, but I prefer the 'known', that lower fees should be more in my pocket than the 'unknown' of future manager performance.

-ERD50

Good points, but I was also looking at the 10 year average which also includes the Great Recession where again, TRP comes out a bit ahead. One can pick any period to show that one is better over the other, I'd guess. I tend to look at the 1,3,5 and 10 year averages.

You say: "I prefer the known that lower fees should be more in my pocket". Agreed, but don't the charts suggest that higher fees and better returns put even more in your pocket? In the end, don't we want the best return regardless of how expensive it is to get there? (assuming fees are included in the return)

As I've mentioned, I'd like to lower my fees but don't see any overwhelming reason if my returns are the same or slightly lower.

I've been known to be figuratively blind in one eye, so I'm not challenging any insights, just asking.

 

[ERD50]

Good points, but I was also looking at the 10 year average which also includes the Great Recession where again, TRP comes out a bit ahead. One can pick any period to show that one is better over the other, I'd guess. I tend to look at the 1,3,5 and 10 year averages. ...

But the question becomes: were the 1, 3, 5 and 10 year averages 'kinder' to a specific profile of holdings that one fund held over the other fund? And will those holdings (or a different set of holdings that some manger picks) be treated 'kindly' over the next 1, 3, 5 and 10 year periods?

If they have been tracking closely for some time, it probably is no big deal either way, they will probably continue to track closely. In general, I prefer not to take 'specific manager' risk.

You say: "I prefer the known that lower fees should be more in my pocket". Agreed, but don't the charts suggest that higher fees and better returns put even more in your pocket? In the end, don't we want the best return regardless of how expensive it is to get there? (assuming fees are included in the return)...

Of course. But a slight lead in the past does not mean there will be a slight lead in the future. Give me a historic chart, and I can easily pick my favorite investment with 100% assurance! I'm less certain of the future (much less!).

As I've mentioned, I'd like to lower my fees but don't see any overwhelming reason if my returns are the same or slightly lower.

That's a very, very big IF. And the fees mean the underlying investments have to perform that much better just to tread water. So, can they do that reliably into the future? That's the big IF. It's not a NO. So do what you want!

-ERD50

 

[samclem]

Good points, but I was also looking at the 10 year average which also includes the Great Recession where again, TRP comes out a bit ahead. One can pick any period to show that one is better over the other, I'd guess.

Your last sentence says all you need to know. Your sample size is too small and "granular" to be of any use in comparing actively managed funds, or even index funds with different asset allocations/different indexes.
TRP is a fine company, so is Vanguard. Fidelity has some low cost index funds. Vanguard's corporate structure is unique among these--profits go back to the customers to help reduce costs.
You'll be ahead if you figure out what type of fund you want, then pick the fund of that type that has low fees. Managers can get lucky, various asset classes can do well or poorly in a particular day/month/quarter/decade, but costs are hard and come directly out of your pocket without letup.

 

[marko]

Your last sentence says all you need to know. Your sample size is too small and "granular" to be of any use in comparing actively managed funds, or even index funds with different asset allocations/different indexes.

I'd think that a 10 or 15 year return/span would be a large enough sample to give me a sense of the fund's performance. I understand that 'past performance doesn't imply future...'.

When I look at a 1,3,5,10 and 15 year return, I'm not expecting the same future, but it does/should give me a sense of how well the fund can perform; if it's a dog or not.

I'm not trying to predict the future, I'm trying to put my money in funds that give me the best total, after fee return regardless of how high those fees are.

Hypothetical now ok?: Wouldn't one be better paying a 2% fee and getting a net 6% return than paying a .5% fee and a 5.5% return from a fund of equal/similar makeup?

Here's what I was hoping to find: That the Vanguard funds' lower fees would deliver an impressive enough return to make me say "what am I doing at TRP?"...I haven't seen that yet.

I've tried my best to find an apples/apples comparison but the Vanguard funds I've looked at, compared to similar funds from TRP or Fido, have lower fees, but do not overwhelmingly outperform those funds to make a change worthwhile.

Please! I'm not being critical of Vanguard. I know that a ton of people here love them! I'm trying to understand if I'm overlooking something.

 

[target2019]

A few thoughts, and I'm not trying to talk you into anything. Each vanguard fund does not outperform every other fund you chose to compare with. You came up with an example where past performance is against vanguard target fund. You're using one measure as proof, and that works for you. However, keep digging to discover why the funds are not identical. I think you should stay with TRP for your target fund. Just set up a few benchmarks with similar target funds and understand over time why they diverge at times.

 

[jerome len]

You should know that SOME managed funds always beat some index funds......but I look at it as I would a baseball players batting average......no one gets a hit all the time but I'll go with the one that has the highest batting average. I read WSJ and Barrons and they'll report % of managed funds beating index funds. Index funds.....all of them not just one example.....always win! Usually index funds beat 60 to 70% of managed funds. And, to top it off, Vanguard managed funds usually have lower fees than those of other fund companies. Now, I have a little $$$$ with Fidelity.....they have a couple of low cost index funds ......but the majority of my money is with Vanguard......over the years I'll win the majority of the time. I like their tax exempt balanced fund.....since I have some investments and pay taxes, their tax exempt bonds really skew the results in my favor.

 

[samclem]

I'd think that a 10 or 15 year return/span would be a large enough sample to give me a sense of the fund's performance.

You would think so (and I did when I started investing), but it really doesn't. The tiny differences in the holding of even similar funds, interacting with market forces that can't be reliably predicted, produce the results you see. Folks who do this for a living have come up with all kinds of complicated metrics that neither you or I could ever duplicate.
And, if the fund is a managed fund, there's a good chance that the "star manager" or a big part of the team has changed. Now, how much of that 15 years of history we've been looking at is still applicable?
There's great debate about whether a competent manager can add value, long term, compared to an index that holds similar stocks. If there's an effect, it is not big. But there's >no< debate that an expensive manager can subtract a lot of value--through costly trading, overhead expenses, and decisions that don't work out. The stats bear this out--most managed funds lag their appropriate indexes. Many people who bought those funds were in the same position you are. They would have been better off controlling what they could--costs.
When I started investing, I looked at mutual funds like they were other commodities that I should shop for, based on their previous performance (a toaster, a car, etc). They really are not like that at all. I wasn't the only one who didn't understand this: Some of the worst advice for picking a mutual fund has come from Consumer Reports magazine.

 

[jetpack]

Apples to Apples comparison for example on s&p index fund. preix vs vfiax over 15 years. Vanguard had 16.6% higher returns. Fee difference is 0.5% vs 0.05%

 

[marko]

Apples to Apples comparison for example on s&p index fund. preix vs vfiax over 15 years. Vanguard had 16.6% higher returns. Fee difference is 0.5% vs 0.05%

Maybe I'm not looking at/using the chart correctly.

If I look at the M* chart and plot vfiax vs preix over 15 years (June 27, 2000 to present), I see that $10K invested in vfiax yields a total of $19,257 vs $18,582 with preix or a total of $675 improvement of vfiax over preix over a 15 year period.

I'm not seeing the 16.6%. Enlighten me. Again, not challenging your claim, but "numbers is hard" for me sometimes.

 

[jetpack]

My mistake.. VFIAX doesn't go back 15 years! So, a tracking error in my calculations.

 

[youbet]

I'm not seeing the 16.6%.

I'm not either. I only went back 10 yrs (the tool I grabbed only went back that far) but it showed the growth of $10k to be $21,296 for preix vs $21,869 for vfiax. Those differences are clearly far short of 16.6%.

Also the difference in ER's is not .5% vs .05% but .27% vs .5%. .27% is pretty high for a S and P 500 index fund but still a lot less than the mistaken .5% figure that was given.

marko - I'm surprised that you're so surprised by what you're seeing. Based on reading zillions of your posts, you seem plenty savvy to understand that even small differences in strategies and management style and capability can offset small differences in expense ratios in managed funds. And with index funds, assuming they all do a good job of tracking the index, the expense ratio is everything. But, with index funds expense ratios are generally small and differences border on inconsequential unless you're talking about large amounts of money over long periods of time.


I'm surprised you're chosing examples from Vanguard's managed funds for comparisons instead of their index funds.

 

[clifp]

Maybe I'm not looking at/using the chart correctly.

If I look at the M* chart and plot vfiax vs preix over 15 years (June 27, 2000 to present), I see that $10K invested in vfiax yields a total of $19,257 vs $18,582 with preix or a total of $675 improvement of vfiax over preix over a 15 year period.

I'm not seeing the 16.6%. Enlighten me. Again, not challenging your claim, but "numbers is hard" for me sometimes.

I'm seeing the same thing. When I go back to the max on the M* chart 1991, the 10K has grown to 103,923 with Vanguard and $98,232 with T Rowe

If my math is correct that works out to be a CAGR over 24 years of 9.99% for T Rowe and 10.25% for Vanguard. Vanguard's expense are .05% and T Rowe is .27%. Hum so .22% advantage in costs translates into a .26% advantage in performance.

I think SamClem has nailed it "But there's >no< debate that an expensive manager can subtract a lot of value--through costly trading, overhead expenses, and decisions that don't work out. "

The initial Bogle/Vanguard marketing push was that cost matter and there is no debate about that. It is also true that generally speaking index funds are less expensive than managed funds. This has lead people to conclude that index funds are better than managed funds. Since Vanguard almost always has the lowest expense fund (in no small part because of their corporate structure) then Vanguard must be the best. Now this is often true and I'd never to try to convince somebody who has Vanguard funds to switch since odds that they'd be better off is pretty small.

However, while the progression from expenses matter to Vanguard is the best is a logical progression. It isn't always true as you have found out. Good for you for doing your own investigation.

Some of the initial comparison were comparing a T Rowe Price balanced fund to Wellington which are both managed. An interesting comparison is to look the T Rowe Price S&P 500 index fund vs Vanguard Wellington VWIAX. First Wellington has lower expense .18% vs .25% than the index fund. But over 24 years $10K has grown to $107,264. What is even more important to me as retiree is that with roughly 1/3 bonds Wellington growth has been much smoother with less volatility.

My view is different than most. I believe that there are quite a few money managers who add value (specifically alpha; risk adjusted return.) Morningstar say the Wellington managers add almost 2% over 15 years. When I go back to the fund founding in 1929, it looks like it is averaged about 1.5% alpha over all these decades. This leads me to conclude it is the organization and not just one manager. I only a pay an additional .13% in expense for this money management, which I think is the second best deal in finance. (My share of Warren Buffett's 100K salary is about about ten cents.)

However, I don't believe that Vanguard has a monopoly on good managers. I think you have likely identified a couple of good ones at T Rowe Price. However you are paying an additional .5%+ for them and I think it is difficult to outperform by 1% consistently and much more than 3% virtually impossible.

 

[marko]

marko - I'm surprised that you're so surprised by what you're seeing. Based on reading zillions of your posts, you seem plenty savvy to understand that even small differences in strategies and management style and capability can offset small differences in expense ratios in managed funds. And with index funds, assuming they all do a good job of tracking the index, the expense ratio is everything. But, with index funds expense ratios are generally small and differences border on inconsequential unless you're talking about large amounts of money over long periods of time.


I'm surprised you're chosing examples from Vanguard's managed funds for comparisons instead of their index funds.

Yeah. What I've learned from this is that notably different/better returns based solely on lower expenses are only part of the equation.

Somehow, my expectation was that I could make a pure apples/apples comparison and clearly see how lower expenses would be the main contributor to return results.

In short, I was looking for V funds with near identical makeup to what I currently own that would markedly out perform what I have, based mostly on the oft repeated mantra that low fees are key.

I was looking for some sort of proof that would drive me from my TRP comfort level, sort of a "look! the same fund makeup and a 2% annual difference!".

As discussed, the Vanguard index funds do indeed outperform the TRP index funds, just not by as much as I was expecting.

 

[target2019]

That would be an interesting sort. Find the highest cost S&P 500 index fund, find the lowest.

Nationwide S&P 500 Instl - .42 e/r
Fidelity Spartan 500 Instl - .02 e/r

Now that's a difference.