WEBVTT - Wiener on Passive Versus Active Management (Audio)

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<v Speaker 1>You're listening to Taking Stock with Kathleen Hayes and Pim

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<v Speaker 1>Fox on Bloomberg radio active versus passive. We have seen

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<v Speaker 1>as much as seventies six billion dollars worth of assets

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<v Speaker 1>leave funds in the first five months of the year,

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<v Speaker 1>according to the Investment Company Institute reporting this a couple

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<v Speaker 1>of months ago. But it's interesting that the firm that

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<v Speaker 1>is the standout performer in asset gathering among active managers

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<v Speaker 1>is the Vanguard Group, even though it's founder, Jack Bogel,

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<v Speaker 1>has been probably the biggest champion ever of a passive

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<v Speaker 1>approach to portfolio construction. So which way is best? Or

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<v Speaker 1>at the very least, what am I getting? What do

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<v Speaker 1>I want? If I go in either direction? Dan Winner

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<v Speaker 1>joins US now chairman and chief executive officer for Advisor Investments,

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<v Speaker 1>joining us today from California. Dan, welcome back to the show.

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<v Speaker 1>Thank you very much. So turns out that Vanguard has

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<v Speaker 1>a lot of actively managed bonds. Does it make any

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<v Speaker 1>difference do you think if it if it's bonds or

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<v Speaker 1>stocks that are actively managed, because you know they are

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<v Speaker 1>securities that behave somewhat differently, you analyze them differently. Does

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<v Speaker 1>does one or the other lend itself to active management. No,

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<v Speaker 1>what really is the advantage that you get at Vanguard,

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<v Speaker 1>and it accrues to indexing as well as to active management,

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<v Speaker 1>is low costs. Um. That's really where indexing is earning

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<v Speaker 1>its reputation. But you can get at Vanguard. You get

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<v Speaker 1>very low costs on their actively managed stock funds, actively

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<v Speaker 1>manage bond funds, and that's what really matters. They have

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<v Speaker 1>a terrific bond group there and their performance has been outstanding.

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<v Speaker 1>So um, Really it's it's costs, it's not whether it's

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<v Speaker 1>active or passive, particularly in the fixed income area. All right, well,

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<v Speaker 1>if that's the case, then maybe you can tell us

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<v Speaker 1>a little bit about the strategy behind multimanager fund at

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<v Speaker 1>Vanguard and what the trend is there, Dan, Well, Tim,

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<v Speaker 1>the the issue at Vanguard is I call it portly

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<v Speaker 1>portfolio management. Um. They seem to have this notion that

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<v Speaker 1>if they keep adding managers to actively manage funds as

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<v Speaker 1>the assets grow, but this will somehow keep performance good

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<v Speaker 1>or or even improve it. And usually what ends up

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<v Speaker 1>happening is it becomes indexing in everything but name you

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<v Speaker 1>get five or six management teams, which means you can

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<v Speaker 1>get you know, fifteen individual managers named managers on a fund,

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<v Speaker 1>and the notion that this is somehow going to even

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<v Speaker 1>compete with indexing is is ludicrous. And the performance has

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<v Speaker 1>really suffered on on the funds that were sort of

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<v Speaker 1>the early takers of this strategy, the Explorer Fund, which

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<v Speaker 1>is a small cap growth fund, or their Morgan Growth Fund,

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<v Speaker 1>which is a an all cap growth fund. They've added managers,

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<v Speaker 1>added managers, added managers, and the performance has gone down, down, down. So, uh,

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<v Speaker 1>when I am looking for say, let's say, actually does

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<v Speaker 1>it make sense sometimes so just to have a passive

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<v Speaker 1>person managing part of your money and someone else active

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<v Speaker 1>or just one person who does both for you take

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<v Speaker 1>some chances with the ass be the active side of it,

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<v Speaker 1>but kind of have the steady flow something you depend

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<v Speaker 1>on more. We're passive. Well, I think it's uh, you're

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<v Speaker 1>not going to get the same portfolio manager per se

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<v Speaker 1>who's going to be doing both active and passive. I

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<v Speaker 1>think you can find and and over twenty five almost

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<v Speaker 1>twenty six years of following Vanguard and building portfolios out

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<v Speaker 1>of Vanguard funds, I've proven that you can create portfolios

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<v Speaker 1>of of funds that are actively managed which will outperform

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<v Speaker 1>the indexes. I mean, it's just a it's just the fact.

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<v Speaker 1>You can take a look at their UH Dividend Growth Fund,

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<v Speaker 1>which is a large cap fund run by a manager,

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<v Speaker 1>Don Kilbride at Wellington Management. He's completely obliterated the index,

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<v Speaker 1>the dividend appreciation index fund that Vanguard has plus the

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<v Speaker 1>five hundred UM. The Prime Cap team, which runs three

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<v Speaker 1>funds for Vanguard, has outperformed the S and P five.

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<v Speaker 1>They have a healthcare team out of Wellington which has

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<v Speaker 1>outperformed Vanguard's healthcare index fund, their et F, the sector indexes.

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<v Speaker 1>They have an International growth fund that's outperformed the EFA.

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<v Speaker 1>Not every actively managed fund at Vanguard with a low

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<v Speaker 1>expense ratio is a good fund necessarily, particularly the ones

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<v Speaker 1>that have been bloated by too many managers. But you

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<v Speaker 1>can build a portfolio of active funds and outperformed the indexes,

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<v Speaker 1>and you know, we've done it for years. What happens

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<v Speaker 1>when Vanguard loses the fund to new money? Have we

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<v Speaker 1>seen that happen recently? Yeah? They very recently closed their

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<v Speaker 1>Dividend Growth fund, which was run by Don Kilbride, or

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<v Speaker 1>is run by Don at Wellington management. It's gotten up

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<v Speaker 1>to about thirty billion dollars in assets. People finally figured

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<v Speaker 1>out that he had some secret sauce there that was working.

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<v Speaker 1>They threw a lot of money on it. But I

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<v Speaker 1>believe we've already seen in one month a slight outflow

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<v Speaker 1>of of assets there, and I believe that over the

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<v Speaker 1>next few months will probably see a lot of hot

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<v Speaker 1>money leaving that fund. He's got a fund that when

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<v Speaker 1>the markets are running very hot, he lags, and then

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<v Speaker 1>when the markets begin to lag a bit, he outperforms.

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<v Speaker 1>And I think there is a lot of hot money

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<v Speaker 1>that follows some of these active managers. And and Vanguard

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<v Speaker 1>just shut the doors down on dividend growth. But this

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<v Speaker 1>is a great fund, uh and and certainly one you

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<v Speaker 1>want to stick with. On other funds, Vanguard's taken another approach.

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<v Speaker 1>They just keep adding managers and then all right, we

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<v Speaker 1>gotta leave it there. Dan Wiener is the chairman and

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<v Speaker 1>the chief executive of Advisor Investments, helping to manage more

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<v Speaker 1>than three billion dollars of customer assets. This is Bloomberg