Active fund investing
Active funds can play an important role in an investment plan, and the decision of how to incorporate active and index strategies in an investment plan should not be regarded as active versus index.
Success is defined differently for every investor, so it is vital to construct an individualized investment plan that focuses on an investor’s specific goals, aligns the risks of investing with their preferences regarding them, and incorporates an awareness of costs that minimize the hurdles to outperformance.
Incorporating a sound and rigorous decision framework into an investor’s diligence process can increase the odds of, and strengthen conviction in, the likelihood of realizing the benefits of active fund investing.
Active and index: Characteristics, not labels
Implementing an investment strategy is often presented as a choice based on whether a fund is labelled “active” or “index.” Such labels are important because they convey pertinent information about funds. However, it is more important that investors consider the characteristics behind those labels.
Considerations for active fund investing
In this piece, Vanguard aims to provide foundational implementation considerations for investors to include in the decision to use active or index strategies in gaining exposure to specific market segments. Incorporating the considerations outlined in this paper into a sound and rigorous decision framework can strengthen conviction in—and increase—the chances of investment success.
Combining active managers: A practical approach
Although extensive research has been conducted on asset allocation strategies and how to pick active managers, there is a very limited body of literature regarding the process of combining active managers within a portfolio. Our framework begins by emphasizing the significance of key statistics for active managers, which provide a foundational understanding of how managers can be combined.
Find out more about this approach here
Default factor is a key differentiator for bond funds
Portfolio managers of active taxable bond funds are all seeking outperformance, but what strategies work best for them? This analysis of bond funds over a span of 20 years across five categories widely used by investors shows that the default factor has consistently been a greater performance differentiator than prepayment or term factors.
Principles for portfolio construction
Vanguard’s portfolio construction framework outlines primary investment methodologies and maps investment options to help investors make informed portfolio decisions. It covers a range of approaches, from strategic asset allocation to more complex strategies that can incorporate private investments and other investment types.
