Vanguard's Active Funds Beat their Benchmarks

Abstract

Jack Bogle, Vanguard’s founder, argued that high expenses and turnover doom mutual funds to inferior returns. This is generally true. In this paper I explore whether this is also true of Vanguard’s actively managed mutual funds. Much of Vanguard’s reputation rests on its index funds. Should its Active funds get equal or even greater respect? I find that
• Vanguard’s active funds on average over-return their benchmarks.
• Vanguard’s active funds that act like passive funds with below median expense ratios and turnover have higher excess returns than those with above median expense ratios and turnover.

Keywords: Vanguard mutual funds, Active Management, Index Mutual Funds

JEL Classification: G11, G14