When you use this feature, you will leave Vanguard and go to a third-party website.
Vanguard is excited to share the results of our latest research, 'The case for low-cost index-fund investing'.
In the white paper, we examine how low-cost index-fund investing has proven to be a successful investment strategy since the launch of the first index fund in the US in 1976, outperforming the majority of active managers across markets and asset styles1.
We look at the recent growth of indexing in the post-GFC investment environment, driven by the proliferation of exchange traded funds. And we highlight three reasons why we expect index investing to continue to be successful in the future.
The zero-sum game. Since the market return represents the average return of all investors, for each position that outperforms the market, there must be a position that underperforms the market by the same amount.
The effect of costs. Once we account for costs, underperformance becomes more likely than outperformance.
Challenge of achieving consistent outperformance. On average and over time, active managers as a group fail to outperform.
Finding a role for active in portfolios
In the white paper we also weigh up the relative merits of index and active fund management.
We review circumstances under which indexing may appear less or more compelling than theory would suggest.
We define active management as any strategy that aims to differentiate itself from a market-cap-weighted benchmark, including alternative indexing, smart beta and factor strategies.
And we provide suggestions for selecting an active manager for investors who still prefer active management or for whom no viable low-cost indexed option is available.