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Wiener on Passive Versus Active Management (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
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  Speaker 1: Fox on Bloomberg radio active versus passive. We have seen
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  Speaker 1: as much as seventies six billion dollars worth of assets
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  Speaker 1: leave funds in the first five months of the year,
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  Speaker 1: according to the Investment Company Institute reporting this a couple
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  Speaker 1: of months ago. But it's interesting that the firm that
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  Speaker 1: is the standout performer in asset gathering among active managers
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  Speaker 1: is the Vanguard Group, even though it's founder, Jack Bogel,
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  Speaker 1: has been probably the biggest champion ever of a passive
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  Speaker 1: approach to portfolio construction. So which way is best? Or
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  Speaker 1: at the very least, what am I getting? What do
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  Speaker 1: I want? If I go in either direction? Dan Winner
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  Speaker 1: joins US now chairman and chief executive officer for Advisor Investments,
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  Speaker 1: joining us today from California. Dan, welcome back to the show.
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  Speaker 1: Thank you very much. So turns out that Vanguard has
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  Speaker 1: a lot of actively managed bonds. Does it make any
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  Speaker 1: difference do you think if it if it's bonds or
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  Speaker 1: stocks that are actively managed, because you know they are
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  Speaker 1: securities that behave somewhat differently, you analyze them differently. Does
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  Speaker 1: does one or the other lend itself to active management. No,
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  Speaker 1: what really is the advantage that you get at Vanguard,
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  Speaker 1: and it accrues to indexing as well as to active management,
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  Speaker 1: is low costs. Um. That's really where indexing is earning
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  Speaker 1: its reputation. But you can get at Vanguard. You get
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  Speaker 1: very low costs on their actively managed stock funds, actively
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  Speaker 1: manage bond funds, and that's what really matters. They have
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  Speaker 1: a terrific bond group there and their performance has been outstanding.
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  Speaker 1: So um, Really it's it's costs, it's not whether it's
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  Speaker 1: active or passive, particularly in the fixed income area. All right, well,
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  Speaker 1: if that's the case, then maybe you can tell us
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  Speaker 1: a little bit about the strategy behind multimanager fund at
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  Speaker 1: Vanguard and what the trend is there, Dan, Well, Tim,
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  Speaker 1: the the issue at Vanguard is I call it portly
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  Speaker 1: portfolio management. Um. They seem to have this notion that
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  Speaker 1: if they keep adding managers to actively manage funds as
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  Speaker 1: the assets grow, but this will somehow keep performance good
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  Speaker 1: or or even improve it. And usually what ends up
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  Speaker 1: happening is it becomes indexing in everything but name you
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  Speaker 1: get five or six management teams, which means you can
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  Speaker 1: get you know, fifteen individual managers named managers on a fund,
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  Speaker 1: and the notion that this is somehow going to even
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  Speaker 1: compete with indexing is is ludicrous. And the performance has
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  Speaker 1: really suffered on on the funds that were sort of
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  Speaker 1: the early takers of this strategy, the Explorer Fund, which
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  Speaker 1: is a small cap growth fund, or their Morgan Growth Fund,
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  Speaker 1: which is a an all cap growth fund. They've added managers,
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  Speaker 1: added managers, added managers, and the performance has gone down, down, down. So, uh,
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  Speaker 1: when I am looking for say, let's say, actually does
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  Speaker 1: it make sense sometimes so just to have a passive
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  Speaker 1: person managing part of your money and someone else active
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  Speaker 1: or just one person who does both for you take
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  Speaker 1: some chances with the ass be the active side of it,
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  Speaker 1: but kind of have the steady flow something you depend
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  Speaker 1: on more. We're passive. Well, I think it's uh, you're
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  Speaker 1: not going to get the same portfolio manager per se
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  Speaker 1: who's going to be doing both active and passive. I
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  Speaker 1: think you can find and and over twenty five almost
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  Speaker 1: twenty six years of following Vanguard and building portfolios out
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  Speaker 1: of Vanguard funds, I've proven that you can create portfolios
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  Speaker 1: of of funds that are actively managed which will outperform
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  Speaker 1: the indexes. I mean, it's just a it's just the fact.
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  Speaker 1: You can take a look at their UH Dividend Growth Fund,
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  Speaker 1: which is a large cap fund run by a manager,
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  Speaker 1: Don Kilbride at Wellington Management. He's completely obliterated the index,
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  Speaker 1: the dividend appreciation index fund that Vanguard has plus the
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  Speaker 1: five hundred UM. The Prime Cap team, which runs three
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  Speaker 1: funds for Vanguard, has outperformed the S and P five.
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  Speaker 1: They have a healthcare team out of Wellington which has
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  Speaker 1: outperformed Vanguard's healthcare index fund, their et F, the sector indexes.
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  Speaker 1: They have an International growth fund that's outperformed the EFA.
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  Speaker 1: Not every actively managed fund at Vanguard with a low
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  Speaker 1: expense ratio is a good fund necessarily, particularly the ones
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  Speaker 1: that have been bloated by too many managers. But you
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  Speaker 1: can build a portfolio of active funds and outperformed the indexes,
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  Speaker 1: and you know, we've done it for years. What happens
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  Speaker 1: when Vanguard loses the fund to new money? Have we
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  Speaker 1: seen that happen recently? Yeah? They very recently closed their
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  Speaker 1: Dividend Growth fund, which was run by Don Kilbride, or
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  Speaker 1: is run by Don at Wellington management. It's gotten up
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  Speaker 1: to about thirty billion dollars in assets. People finally figured
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  Speaker 1: out that he had some secret sauce there that was working.
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  Speaker 1: They threw a lot of money on it. But I
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  Speaker 1: believe we've already seen in one month a slight outflow
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  Speaker 1: of of assets there, and I believe that over the
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  Speaker 1: next few months will probably see a lot of hot
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  Speaker 1: money leaving that fund. He's got a fund that when
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  Speaker 1: the markets are running very hot, he lags, and then
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  Speaker 1: when the markets begin to lag a bit, he outperforms.
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  Speaker 1: And I think there is a lot of hot money
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  Speaker 1: that follows some of these active managers. And and Vanguard
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  Speaker 1: just shut the doors down on dividend growth. But this
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  Speaker 1: is a great fund, uh and and certainly one you
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  Speaker 1: want to stick with. On other funds, Vanguard's taken another approach.
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  Speaker 1: They just keep adding managers and then all right, we
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  Speaker 1: gotta leave it there. Dan Wiener is the chairman and
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  Speaker 1: the chief executive of Advisor Investments, helping to manage more
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  Speaker 1: than three billion dollars of customer assets. This is Bloomberg