You're listening to Taking Stock with Kathleen Hayes and Pim Fox on Bloomberg radio active versus passive. We have seen as much as seventies six billion dollars worth of assets leave funds in the first five months of the year, according to the Investment Company Institute reporting this a couple
of months ago. But it's interesting that the firm that is the standout performer in asset gathering among active managers is the Vanguard Group, even though it's founder, Jack Bogel, has been probably the biggest champion ever of a passive approach to portfolio construction. So which way is best? Or at the very least, what am I getting? What do I want? If I go in either direction? Dan Winner joins US now chairman and chief executive officer for Advisor Investments,
joining us today from California. Dan, welcome back to the show. Thank you very much. So turns out that Vanguard has a lot of actively managed bonds. Does it make any difference do you think if it if it's bonds or stocks that are actively managed, because you know they are securities that behave somewhat differently, you analyze them differently. Does
does one or the other lend itself to active management. No, what really is the advantage that you get at Vanguard, and it accrues to indexing as well as to active management, is low costs. Um. That's really where indexing is earning its reputation. But you can get at Vanguard. You get very low costs on their actively managed stock funds, actively manage bond funds, and that's what really matters. They have a terrific bond group there and their performance has been outstanding.
So um, Really it's it's costs, it's not whether it's active or passive, particularly in the fixed income area. All right, well, if that's the case, then maybe you can tell us a little bit about the strategy behind multimanager fund at Vanguard and what the trend is there, Dan, Well, Tim, the the issue at Vanguard is I call it portly
portfolio management. Um. They seem to have this notion that if they keep adding managers to actively manage funds as the assets grow, but this will somehow keep performance good or or even improve it. And usually what ends up happening is it becomes indexing in everything but name you get five or six management teams, which means you can get you know, fifteen individual managers named managers on a fund, and the notion that this is somehow going to even
compete with indexing is is ludicrous. And the performance has really suffered on on the funds that were sort of the early takers of this strategy, the Explorer Fund, which is a small cap growth fund, or their Morgan Growth Fund, which is a an all cap growth fund. They've added managers,
added managers, added managers, and the performance has gone down, down, down. So, uh, when I am looking for say, let's say, actually does it make sense sometimes so just to have a passive person managing part of your money and someone else active or just one person who does both for you take some chances with the ass be the active side of it, but kind of have the steady flow something you depend
on more. We're passive. Well, I think it's uh, you're not going to get the same portfolio manager per se who's going to be doing both active and passive. I think you can find and and over twenty five almost twenty six years of following Vanguard and building portfolios out of Vanguard funds, I've proven that you can create portfolios of of funds that are actively managed which will outperform the indexes. I mean, it's just a it's just the fact.
You can take a look at their UH Dividend Growth Fund, which is a large cap fund run by a manager, Don Kilbride at Wellington Management. He's completely obliterated the index, the dividend appreciation index fund that Vanguard has plus the five hundred UM. The Prime Cap team, which runs three funds for Vanguard, has outperformed the S and P five. They have a healthcare team out of Wellington which has outperformed Vanguard's healthcare index fund, their et F, the sector indexes.
They have an International growth fund that's outperformed the EFA. Not every actively managed fund at Vanguard with a low expense ratio is a good fund necessarily, particularly the ones that have been bloated by too many managers. But you can build a portfolio of active funds and outperformed the indexes, and you know, we've done it for years. What happens when Vanguard loses the fund to new money? Have we
seen that happen recently? Yeah? They very recently closed their Dividend Growth fund, which was run by Don Kilbride, or is run by Don at Wellington management. It's gotten up to about thirty billion dollars in assets. People finally figured out that he had some secret sauce there that was working. They threw a lot of money on it. But I believe we've already seen in one month a slight outflow of of assets there, and I believe that over the next few months will probably see a lot of hot
money leaving that fund. He's got a fund that when the markets are running very hot, he lags, and then when the markets begin to lag a bit, he outperforms. And I think there is a lot of hot money that follows some of these active managers. And and Vanguard just shut the doors down on dividend growth. But this is a great fund, uh and and certainly one you want to stick with. On other funds, Vanguard's taken another approach. They just keep adding managers and then all right, we
gotta leave it there. Dan Wiener is the chairman and the chief executive of Advisor Investments, helping to manage more than three billion dollars of customer assets. This is Bloomberg