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Old 06-28-2014, 06:48 PM   #21
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Originally Posted by BBQ-Nut View Post
Ok..fair enough...although one could argue semantics that "International" can include US equities...whatever...

To the crux of my question - high ER funds are poo poo'd - would tend to agree. But - if the track record is there, can/should they be considered at all, or summarily dismissed?
No we shouldn't

I mean we don't dismiss Wellesley and Wellington just because they managed.

I recently met a couple of local ER members for lunch. During the lunch one of the guys Kimo gave me a book called the 2014 Independent Guide to Vanguard Funds. Basically it consists of a single page evaluation of each Vanguard fund. About 2/3 of it consists of the same type of performance data you'd see at Morningstar. About 1/3 of it is the authors qualitative assessment of the funds. I haven't read all of the book, but did read much of it.

It appears that in solid majority of the funds, the author prefer the managed fund vs the index fund, based on the past track record.. This was especially true in the case of international funds.

For instance the the 10 year returns (to 2013) of Total international VGTSX is 101.5% If we look at the 10 year total returns of the 3 actively managed international Vanguard funds. We have Global Equity at 111.9%, International value at 112.6% International Growth at 129.5%, and International Explorer (small cap) at 156.2%. Now the managed funds are slightly more volatile than the index fund, but the difference isn't huge a Beta of VGTSX of 1.13 vs Explorer of 1.18.. The ER is certainly higher .4-6% vs .15% for the admiral international index fund.

It seems to me that international stock picking is one area where indexing may not be the way to go.

One other thing I learned in looking at Vanguard's website 102 out 111 Vanguard stocks funds beat their indexes over a ten year average. Now Vanguard has a lot of Index funds, but they also have a ton of active funds. The one characteristic of Vanguard funds is low expense, I wonder if that isn't a big factor in the 102 out of 111 funds more than indexing.

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Old 06-28-2014, 06:51 PM   #22
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Originally Posted by BBQ-Nut View Post
Beg to differ when compared to say VEA
If your question is whether a fund is "good" or not, VEQ and VWO are totally different index funds and both good and both low ER. You should probably have both of them. They'll behave differently and smooth out your portfolio.

On the other hand if you want to say you screwed up by overweighting VWO instead of VEA, that's fine too.

But just because VWO didn't match the performance of VEA in the last one to five years doesn't make VWO a bad fund.

Be sure to compare your active funds against their nearest index fund benchmark. I don't think we've seen two similar funds mentioned in this thread yet.

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Old 06-28-2014, 06:57 PM   #23
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Originally Posted by clifp View Post
One other thing I learned in looking at Vanguard's website 102 out 111 Vanguard stocks funds beat their indexes over a ten year average. Now Vanguard has a lot of Index funds, but they also have a ton of active funds. The one characteristic of Vanguard funds is low expense, I wonder if that isn't a big factor in the 102 out of 111 funds more than indexing.

"Cost matters"...or so I've heard.
Numbers is hard

Although rare, it is possible to read something on this forum you don't agree with and simply move on with your life

Retired in 2005 at age 58, no pension
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Old 06-29-2014, 06:23 AM   #24
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Morningstar recently published a series of articles on fund expenses, showing that total expense is the single best predictor of future performance relative to other funds in the same category. The website "The Mutual Find Observer" picked it up and did some additional data analysis. I'll see if I can find the links and post here. The evidence was solid.

One thing to keep in mind when it comes to extrapolating past performance is large fund companies often merge or close poor performers, this helps creates the appearance that over performance is sustainable.
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Old 06-29-2014, 08:36 AM   #25
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The only actively managed funds I have in my portfolio are for foreign markets.

It's impossible to find true broad exposure to the depth that want in Vanguard or other low-cost index funds - it's like wanting to own the US market, but only finding an index fund that has the top 20 US stocks by market cap, or going with a small-cap fund that only has 20-30 US small-cap stocks. I want to try and capture a lot more exposure to a lot of the smaller name in various markets, and sometimes the easiest way is by a few actively-managed funds, like a Matthews fund. It's a trade-off I'm willing to make, although I surely don't like it.

But the other thing is that many foreign actively-managed funds do have higher expenses just from the aspect of paying more for stock trades and other requirements of trading on foreign there's only so low you can go on a foreign ER (except for the billions in a fund like VWO).
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Old 06-29-2014, 09:00 AM   #26
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Actually VXUS is ETF version of VGTSX. VGTSX is active since 1996. One can compare long term returns of VGTSX versus FWWFX.

They are identical over last 18 years (not counting dividends). It looks to me over that period of time Vanguard had more dividends though and was more tax efficient.

VXUS 126 Billion dollars managed by fund.
FWWFX 1.7 Billion Dollars.

So my choice would be follow 126 Billion dollars of other people's money.

I realize that those 2 funds do not invest in same markets...hence they should not be compared...
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Old 06-30-2014, 08:29 AM   #27
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Goes back to the original question, would one buy a higher ER fund? I guess it depends on how much higher? Vanguard's Wellington has higher expense than Vanguard Balance, around 0.25% vs 0.10%, either fund is a great choice.

While some funds do outperform, you need to know why they did. Was it because the fund invested in a difference market (Emerging vs Developed), size (small vs large caps), value (instead of growth)? Index funds is considered a "core" because it captures value, growth and anything in between. For example, Wellington is more a value fund so comparing to Vanguard Balance is not really correct.

So I would invest in a higher ER fund but know what you are buying is just as important as the ER, my opinion.
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Old 06-30-2014, 11:51 AM   #28
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Here's a list of 48 funds that M* (Russ Kinnel at least) likes. All lower quintile ER, but I think they are all active funds since they were selecting for index beating performance.

The Fantastic 48

"My criteria:

  • Must beat the fund’s benchmark since the start date of the longest-tenured manager
  • Must have expense ratios in the cheapest quintile of the category
  • Must have a manager who has run the fund for at least five years.
  • Must have a Morningstar Analyst Rating of Bronze or better
  • Must have a positive Parent rating
  • Must have at least one manager with at least $500,000 or more invested
  • Must have overall Morningstar Risk that is not High
  • Must not be limited to institutional investors"
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Old 07-27-2014, 01:09 PM   #29
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My two core funds are Fidelity Contra and Low-Priced. Got lucky, but I did and do look carefully at 3, 5, and 10 year returns, as well as beta and Sharpe ratio. Contra has been getting so big that it is turning into something of an S&P index, despite Danoff's herculean efforts. But DW's portfolio core holding is the S&P index. I'm looking to probably cut Contra in 1/3, reluctantly after 20 years, to replace with a large value or low beta holding.
Vanguard Cap Opp is also a fine active fund, but it's a much smaller position in DW's rollover. And Fidelity Biotech is 25% of the other two but it was made almost 50%, but I have to manage it by harvesting gains when there is a sharp runup as in the early 2000s and the last 5 years. In extreme's I harvest semi-annually or even quarters at huge run-ups.
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Old 08-01-2014, 05:55 PM   #30
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My investing philosophy is this: simple wide equity diversification at the lowest possible cost. FI = the cheapest bond fund available to us + cash.

Our portfolio's net (of taxes) REAL expected CAGR = 4.4%.

Subtract 1.2% for a 60% equity allocation retirement volatility for annual withdrawals. Subtract another 3.0% for our annual living expenses.

So 4.4-1.2-3.0 = 0.2% net real CAGR for our retirement portfolio.

Our portfolio's ER = 0.16%. There is NO WAY we could afford to pay more without having negative real portfolio growth.

AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
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