Actively Managed Funds vs. Vanguard Index Funds Update

It has been more than a year since I last ran a comparison between my actively managed funds and low-cost Vanguard index funds. After the huge losses in stock markets last year, I am more interested in seeing how my funds have performed in 2008 and how they compared against Vanguard funds. To compare, I am using the same Vanguard funds as I have used before for the sake of consistency:

  • Alpine Dynamic Dividend (ADVDX) vs. Vanguard Mid Capitalization Index (VIMSX)
  • Buffalo Small Cap (BUFSX) vs. Vanguard Small Cap Growth Index (VISGX)
  • CGM Focus (CGMFX) vs. Vanguard PRIMECAP (VPMCX)
  • Dodge & Cox Stock (DODGX) vs. Vanguard Value Index (VIVAX)
  • Dodge & Cox International Stock (DODFX) vs. Vanguard International Value (VTRIX)
  • Oakmark Equity & Income (OAKBX) vs. Vanguard STAR (VGSTX)
  • T. Rowe Price Small-Cap Value (PRSVX) vs. Vanguard Small Cap Value Index (VISVX)
  • T. Rowe Price New Era (PRNEX) vs. Vanguard Energy (VGENX)
  • Third Avenue Real Estate Value (TAREX) vs. Vanguard REIT Index (VGSIX)
  • Tocqueville Gold (TGLDX) vs. Vanguard Precious Metals and Mining (VGPMX)

Why am I using actively managed funds in taxable account instead of index funds? I am not against using index funds. In fact, I am using index funds in IRA, 401(k), and 529 accounts. The main reason for me to buy actively managed funds is that when I started investing years ago, I didn’t have much money to buy Vanguard funds which usually need a $3,000 minimum to start, but I still wanted different asset classes in my portfolio. So instead of waiting to accumulate enough money to buy Vanguard funds, I started to invest in active funds with low minimum and have been buying these funds monthly with automatic investment plans. Now after all these years, I think it doesn’t too much sense to dump these funds and started all over again. So, yes, I’ll stick with them.

Now let’s see how my funds did last year (all data from Morningstar.com)

My fund ER (%) Yield (%)
2008 return Vanguard fund ER (%)
Yield (%)
2008 return
ADVDX 1.15 30.89 -49.0% VIMSX 0.21 1.95 -41.8%
BUFSX 1.00 0.0 -29.8% VISGX 0.22 0.85 -40.0%
CGMFX 1.27 0.82 -48.2% VPMCX 0.43 1.05 -32.4%
DODGX 0.52 2.34 -43.3% VIVAX 0.20 4.09 -36.0%
DODFX 0.65 4.0 -46.7% VTRIX 0.42 4.23 -41.7%
OAKBX 0.81 1.74 -16.2% VGSTX 0.31 4.10 -25.1%
PRSVX 0.81 1.07 -28.6% VISVX 0.22 2.90 -32.1%
PRNEX 0.63 1.63 -50.2% VGENX 0.25 2.71 -42.9%
TAREX 1.12 2.86 -44.7% VGSIX 0.20 8.06 -37.1%
TGLDX 1.42 0.0 -34.9% VGPMX 0.28 5.24 -56.0%

If using S&P 500 as the benchmark, which lost some 38% in 2008, then there’s not much for me to cheer about, really. Except, OAKBX, which invests one third of its assets in bonds, all other funds returned miserably last year. Given the portion of fixed income investments in OAKBX, the performance of the fund came as no surprise. The same has happened to one of the Lazy Portfolios I discussed before.

Among my funds, those hit the hardest were 1) funds invested in energy/oil, such as CGMFX and PRNEX, after what happened to oil prices in the second half of 2008; 2) funds have big exposure in foreign markets, such as ADVDX and DODFX. Even though ADVDX isn’t categorized as a foreign fund, it does have a quarter of its assets invested in foreign stocks. The real surprise came from the two small-cap funds I own, BUFSX and PRSVX, both beat their Vanguard counterparts easily. For 2008, the small-cap Russell 200o index returned -35%, a little better than the S&P 500. If the economy recovers this year, will small-cap continue to outperform large-cap?

One thing I noticed other than the performance difference while compiling the list is that some of my funds actually incresed their expense ratiso (ER), but Vangurad funds kept cutting costs each year. Another reason to buy index funds?

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