Statistical portraits of the average American are often unflattering. The numbers usually describe the typical Yank as someone who eats too many Quarter Pounders, drinks too many sugary and alcoholic drinks, watches too much TV, and plays too many video games. "Basically," my eldest daughter quipped a few years ago after reading such a description, "the average American is gross."
I thought of her comment and the average actively managed mutual fund after listening to one of the panel discussions at a recent event held in honor of Vanguard founder Jack Bogle by the Institute for The Fiduciary Standard in New York. Because it was the John C. Bogle Legacy
Forum, one of the first panels was naturally about indexing. It was stacked with passive-investing sympathizers such as Yale professor and founder of Morningstar unit Ibbotson Associates Roger Ibbotson; Princeton professor and
Random Walk Down Wall Street author Burton Malkiel; and Vanguard CIO and former index fund manager Gus Sauter. The Yale endowment's very active manager, David Swensen, also participated, but he has a
well-documented soft spot for indexing as well. Indeed, all of them reiterated and agreed on most of the well-worn
arguments for indexing.
They called Bogle's introduction of the first index fund 36 years ago a bold stroke of entrepreneurial genius that ultimately changed investing for the better. They said low-cost indexing beats most active managers in most asset classes and peer groups over most time periods and that even the managers who do beat their bogies in one time period find it darn near impossible do so in subsequent time spans. They cited the recent torrent of asset flows from active to passive mutual funds and exchange-traded funds as validation and vindication of an approach that was once dismissed as "Bogle's Folly." And they concurred that most investors would be best served by setting a balanced portfolio of stocks, bonds, and cash and tinkering with it as little as possible.
All of this had been said many, many times before.
All or Nothing?
The only issue on which they differed was whether indexing, which now accounts for about a fourth of mutual fund and ETF assets, would or should completely dominate investors' portfolios. That's when an interesting difference emerged and I thought about the average American and my child's revulsion of him.
Sauter, the veteran index fund manager from the firm that did for passive investing what McDonald's did for the hamburger, actually conceded that active management was not a hopeless case. It's possible for some active managers to beat the market, Sauter said, though it's so hard to pick them beforehand that even investors who consider themselves sophisticated should still index a big portion of their assets just in case. Swensen, the highly active endowment manager whose success and writings have
inspired a generation of institutional investors to add alternative strategies and asset classes to their portfolios, said it was either all or nothing when it came to active versus passive investing. If you can't bring the same kind of time, expertise, and resources Yale does to bear on the task of selecting managers, don't bother, he said. Just index everything. "There's almost no chance that you're going to pick an active fund that's going to beat the market over a 20-year period," he said.
Swensen makes a point. Morningstar research of asset-weighted investor returns, which he cited, show
professional and do-it-yourself
investors alike often do a lousy job buying and selling funds. They get in just as hot streaks are about to cool and get out of cold funds right before they heat up again.
Bad Funds vs. Bad Behavior
That isn't so much an argument against active fund managers, though, as it is an indictment of overactive fund investors, regardless of whether they're using active or passive vehicles. Asset-weighted returns of index funds
often show that index investors show the same tendency to chase returns to their detriment. You can lead investors to low-cost index funds, but you can't make them buy and hold.
If you followed Swensen's advice and bought and held an appropriate mix of index funds, you'd help your odds of avoiding self-destructive behavior and reaching your investment goals. You need not be doomed, however, if you did the same thing with a set of low-cost, competently managed actively managed funds, which despite Swensen's blanket dismissal, do exist. The average actively managed mutual fund, like the average American, can look pretty gross. It charges higher fees than passive funds for subpar returns with more volatility and tax headaches. But just as not every American is an obese, soft-drink swilling, chain-smoking couch potato; not every actively managed fund is a bloated, risky, shareholder-gouging mediocrity.
You can increase your odds of success, though by no means guarantee it, by setting very high standards for selecting actively managed funds and sticking with them.
Morningstar analysts have long done so, first with our Fund Analyst Picks and now with our new qualitative Analyst Rating, which both focus on funds with experienced managers, proven strategies, responsible parent companies, reasonable fees, and long track records of success. We call the criteria the five Ps: People, Process, Parent, Price, and Performance. Our own studies have shown that our picks have
done well over time and we're confident it will also hold true for the Analyst Ratings, which have supplanted the Analyst Picks.
Bogle's Ps
Don't take our word for it, though. Indexing's greatest evangelist, Bogle himself, delineated
eerily similar standards for selecting successful active managers in the inaugural 1985 annual report of
Vanguard Primecap (VPMCX). In it
Bogle said Vanguard hired Primecap because of its people, philosophy, portfolio, and performance. Those criteria have been the basis for Vanguard's approach to selecting subadvisors for actively managed funds for years. Bogle and Vanguard will be the first to tell you they've made mistakes in this area, which is a big reason why the family uses multiple managers on most of its active funds now. But many of Vanguard's actively managed subadvised funds
have done well relative to their peers and index fund siblings over time and some, like those managed by Primecap, have been superior.
It's tough to beat low-cost index funds. But just as it was wrong to deride passive investing as settling for average results, it's
a mistake to equate all active funds with
the average active fund.
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Morningstar認為投資主動型基金需要理解五個P (People, Process, Parent, Price, and Performance)。
Bogle則認為投資主動型基金需要了解People, Philosophy, portfolio, and performance。
如果無法掌握上述那些P的話，指數化投資似乎比較妥當。
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