cancel
Showing results for 
Search instead for 
Did you mean: 
     
Highlighted
a_steve
Follower ○○

All active mutual funds will eventually disappoint you

Looking back through a history of active funds, you see example after example of funds or fund families (Fidelity, DFA, PIMCO, Legg Mason, etc) that were hot for a while, then reverted to underperformance, usually after their asset size increased. While random chance dictates that some funds will outperform over some periods, eventually their higher fees will drag down returns. 

Do you agree or disagree with this view? 

0 Kudos
82 Replies
yogibearbull
Valued Contributor

Re: All active mutual funds will eventually disappoint you

I am willing to bet on low-cost active funds that may or may not outperform. I won't be disappointed if they end up underperforming.

I do have some specialized indexed OEFs/ETFs.

YBB
0 Kudos
Bartab
Explorer ○

Re: All active mutual funds will eventually disappoint you

I was very disappointed in VFINX in 2008.

0 Kudos
retiredat48
Participant ○○○

Re: All active mutual funds will eventually disappoint you

 

Per M* Charts, $10,000 initially in Vanguard's actively-managed VWELX Wellington Fund, at inception sept 1929, has grown to $13,605,798.48.

Forgot to mention, I have owned (via spouse) VWELX Wellington since 1953.  Per M*, $3262 invested then has grown to $1,360,580.  

Mother-in-law just turned age 100, 29 December; she is glad I never sold any VWELX. 

While some trying times along the way, what is not to like about actively-managed Wellington Fund!

Currently, I will never sell...hope my kids enjoy their inheritance.

R48

 

 

0 Kudos
FatKat
Participant ○○○

Re: All active mutual funds will eventually disappoint you

Look at the history of PRNHX; it as done well and has moderate expense. Same with even less expense PRIMECAP, VPMAX and the Wellington fund I hold the very low expense VWENX, not held VWELX in years now. VDIGX is also a well managed active fund with low expenses. I do think slumps will effect high expense funds, but these all have modest fees.

This is the reason I have problems with investing in those expensive bond funds. Equity funds have treated me very well, expense wise.

0 Kudos
Sheryldell
Participant ○

Re: All active mutual funds will eventually disappoint you

I often wonder why it has to be all or none.

I think a combination of active and passive can probably be as effective and does add a little more interest in following ones portfolio.

yogibearbull
Valued Contributor

Re: All active mutual funds will eventually disappoint you


@FatKat wrote:

Look at the history of PRNHX; it as done well and has moderate expense. Same with even less expense PRIMECAP, VPMAX and the Wellington fund I hold the very low expense VWENX, not held VWELX in years now. VDIGX is also a well managed active fund with low expenses. I do think slumps will effect high expense funds, but these all have modest fees.

This is the reason I have problems with investing in those expensive bond funds. Equity funds have treated me very well, expense wise.


PRNHX had a manager change in March 2019.

YBB
0 Kudos
Mozart622
Participant ○

Re: All active mutual funds will eventually disappoint you

Well, at age 74, I'm only worried about the active funds that will disappoint me in the next 20 years or less :o)

Intruder
Contributor ○○

Re: All active mutual funds will eventually disappoint you


@a_steve wrote:

Looking back through a history of active funds, you see example after example of funds or fund families (Fidelity, DFA, PIMCO, Legg Mason, etc) that were hot for a while, then reverted to underperformance, usually after their asset size increased. While random chance dictates that some funds will outperform over some periods, eventually their higher fees will drag down returns. 

Do you agree or disagree with this view? 


Just how do you define underperform?

And what is the significance of eventually? As Keynes reminds us in the long run we are all dead.

0 Kudos
yogibearbull
Valued Contributor

Re: All active mutual funds will eventually disappoint you


@retiredat48 wrote:

 

Per M* Charts, $10,000 initially in Vanguard's actively-managed VWELX Wellington Fund, at inception sept 1929, has grown to $13,605,798.48.

Forgot to mention, I have owned (via spouse) VWELX Wellington since 1953.  Per M*, $3262 invested then has grown to $1,360,580.  

Mother-in-law just turned age 100, 29 December; she is glad I never sold any VWELX. 

While some trying times along the way, what is not to like about actively-managed Wellington Fund!

Currently, I will never sell...hope my kids enjoy their inheritance.

R48


Of course, you didn't buy it, and it doesn't fit your style - not liking hybrids. And FPURX may have been better for the period in question. FPURX VWELX 1953-

But you got it through marriage and have held on to keep wife and MIL happy, both good reasons to keep family peace.

YBB
0 Kudos
Sheryldell
Participant ○

Re: All active mutual funds will eventually disappoint you

Just curious - what did Wellington managers change in the 70s that made their returns basically equivalent to Fidelity's going forward?'

I changed the start date to 1/1/76 and they are virtually the same TR.

0 Kudos
yogibearbull
Valued Contributor

Re: All active mutual funds will eventually disappoint you


@Sheryldell wrote:

Just curious - what did Wellington managers change in the 70s that made their returns basically equivalent to Fidelity's going forward?'

I changed the start date to 1/1/76 and they are virtually the same TR.


You should change the date to 1980.

1965-80 was a really BAD stretch for VWELX that (i) got Bogle fired and then (ii) he started Vanguard.

Short Summary: VWELX used to be a load-fund and it was playing games with unrealized CGs [under Bogle leadership] before the rules were changed. Also, it changed investment policy after its old level-or-higher dividends any-which-way became unsustainable. I have said before that it was the original income-builder [IB] fund even before the term came into the current use. All that is changed now, and the current VWELX isn't anything like its former self.

YBB
0 Kudos
ElLobo
Participant ○○○

Re: All active mutual funds will eventually disappoint you


@a_steve wrote:

Looking back through a history of active funds, you see example after example of funds or fund families (Fidelity, DFA, PIMCO, Legg Mason, etc) that were hot for a while, then reverted to underperformance, usually after their asset size increased. While random chance dictates that some funds will outperform over some periods, eventually their higher fees will drag down returns. 

Do you agree or disagree with this view? 


If you buy a fund, active or passive index, or ANY investment, for that matter, for the amount of divey/distribution cash thrown off by it (the distribution yield for a fund), in order to, for example, fund a retirement withdrawal, why would you ever care whether the TR of your fund out, or under, performed any other fund, index, . . . . .?  Wellington (VWELX) and High Yield (VWEHX) both throw off more cash, at $238 and $537, for $10,000 currently invested in either, than the $177 thrown off by VFINX.  Ditto for the $829 thrown off by PCI.

0 Kudos
RichinKansas
Explorer ○○○

Re: All active mutual funds will eventually disappoint you

Index funds only perform the average of their index defined in their prospectus, and that index can do good or bad. Active managed funds perform according to the criteria of their prospectus. And that is sometimes good and sometimes bad. But some outperform their sector while other don't.  Very few funds can you buy and forget. So to say all active managed funds will eventually under perform yet index funds are somehow protected from under performing is simplistic. S&P index funds were great in 2019 yet 2008 was a different story.

Rich

0 Kudos
Bartab
Explorer ○

Re: All active mutual funds will eventually disappoint you


@Sheryldell wrote:

Just curious - what did Wellington managers change in the 70s that made their returns basically equivalent to Fidelity's going forward?'

I changed the start date to 1/1/76 and they are virtually the same TR.


Maybe the question should be "What did Fidelity managers do to underperform VWELX"?

0 Kudos
Bentley
Contributor ○○○

Re: All active mutual funds will eventually disappoint you


@RichinKansas wrote:

 S&P index funds were great in 2019 yet 2008 was a different story.

Rich


 

 "The belief that bear markets favor active management is a myth. A majority of active funds in eight out of nine domestic equity style boxes were outperformed by their S&P indices in the negative markets of 2008. The bear market of 2000 to 2002 showed similar results."-----------------April 2009 SPIVA Scorecard

 

 Come rain or shine, active is more likely, on average, to underperform its comparable Index.

0 Kudos
RichinKansas
Explorer ○○○

Re: All active mutual funds will eventually disappoint you


@Bentley wrote:

@RichinKansas wrote:

 S&P index funds were great in 2019 yet 2008 was a different story.

Rich


 

 "The belief that bear markets favor active management is a myth. A majority of active funds in eight out of nine domestic equity style boxes were outperformed by their S&P indices in the negative markets of 2008. The bear market of 2000 to 2002 showed similar results."-----------------April 2009 SPIVA Scorecard

 

 Come rain or shine, active is more likely, on average, to underperform its comparable Index.


My point was index funds have ups and downs also. You just can't buy index funds and go watch reruns of Lucy.

You do need to do more home work buying active managed funds than just picking  an index fund with darts.

Rich

0 Kudos
FatKat
Participant ○○○

Re: All active mutual funds will eventually disappoint you


@yogibearbull wrote:

@FatKat wrote:

Look at the history of PRNHX; it as done well and has moderate expense. Same with even less expense PRIMECAP, VPMAX and the Wellington fund I hold the very low expense VWENX, not held VWELX in years now. VDIGX is also a well managed active fund with low expenses. I do think slumps will effect high expense funds, but these all have modest fees.

This is the reason I have problems with investing in those expensive bond funds. Equity funds have treated me very well, expense wise.


PRNHX had a manager change in March 2019.


Yes, manager Henry Ellenbogen is a huge loss, but I would not downgrade the fund from gold to bronze like M* has done, it still is a gold fund in my book.

0 Kudos
Bentley
Contributor ○○○

Re: All active mutual funds will eventually disappoint you

 
0 Kudos
Bentley
Contributor ○○○

Re: All active mutual funds will eventually disappoint you


@RichinKansas wrote:

@Bentley wrote:

@RichinKansas wrote:

 S&P index funds were great in 2019 yet 2008 was a different story.

Rich


 

 "The belief that bear markets favor active management is a myth. A majority of active funds in eight out of nine domestic equity style boxes were outperformed by their S&P indices in the negative markets of 2008. The bear market of 2000 to 2002 showed similar results."-----------------April 2009 SPIVA Scorecard

 

 Come rain or shine, active is more likely, on average, to underperform its comparable Index.


My point was index funds have ups and downs also.


 

 It also gets dark once the sun goes down. And even in the dark, active managers will still underperform their index, on average during both up and down markets.

0 Kudos
Announcements

To learn more about the recent changes to Morningstar.com, please see the updated FAQ.

See recent posts and all our forums or access the old forums here.
 

You can read the community guidelines in