At Vanguard, Active Management Isn’t Dead

It hasn’t made Vanguard’s website, and while the just-released annual report for Vanguard International Growth Fund (VWIGX) mentions the addition of a co-manager for the portion of the fund run by Baillie Gifford, shareholders may be in for a surprise when they learn that long-standing Schroder manager Virginie Maisonneuve is decamping for PIMCO at the end of the year to become the firm’s Global Head of Equities Portfolio Management. I’m guessing Vanguard was surprised by the announcement as well.

Maisonneuve, who I interviewed for the July issue of The Independent Adviser for Vanguard Investors, took over for the fund’s veteran manager Richard Foulkes, upon his retirement in 2005 as lead manager on Schroder’s piece of the fund. At the time, Schroder managed a bit more than 70% of the fund’s $11.5 billion in assets. Today, the Schroder piece is under 40% of the $21.2 billion asset base, or about the same $8 billion it ran when Maisonneuve took the reins. M&G Investment Management and Baillie Gifford manage the 60%-plus of assets in International Growth not under Schroder’ control.

While there are plenty of ways to measure performance, a quick look at rolling 3-year and 5-year returns for Vanguard International Growth Fund will give some sense of how well the fund has performed. Since Maisonneuve took over her piece of the fund, Vanguard International Growth’s average 3-year and 5-year returns have been 1.6% and 1.3% respectively. That may not sound like much, but compare it to Vanguard Total International Stock Index Fund (VGTSX) or Vanguard Developed Markets Index Fund (VDMIX) which, on average, lost money for shareholders and you can see that International Growth has done a nice job of outperforming in a difficult environment.


As the graph shows, since Maisonneuve took over, the EAFE Growth index has outperformed the overall EAFE index, but more importantly, Vanguard International Growth has outperformed even more.


I’m willing to stick with my recommendation to Buy Vanguard International Growth as a diversified means of adding foreign stock exposure to portfolios, and I’ll be watching to see if performance suffers, or remains market-beating. Once again, active management is outpacing the indexes. You just wouldn’t know it from listening to the chorus of those who believe you should either join the indexing bandwagon, or forget about investing entirely.

Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.

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