Vanguard Multi-Manager Approach Redux

In the Dec. 1, 2008 issue, I wrote about Scottish manager Baillie Gifford, which runs pieces of four Vanguard portfolios, and the way in which Vanguard uses a multi-manager approach to increase return and reduce risk. Dan Wiener, editor of The Independent Adviser for Vanguard Investors, wrote in to question that multi-manager approach.

Wiener points to Vanguard Morgan Growth Fund, which has $6.4 billion in assets and has been employing the multi-manager format since 1990. On Nov. 25, Vanguard announced that it had ditched Franklin Portfolio Associates, which had managed some 20% of the fund, for two new firms. The fund, Wiener writes, “has operated with two, three, four, three, and now five different management teams,” and the recent shakeup “suggests that Vanguard simply can’t make up its mind whether there are too few, or too many cooks in Morgan’s kitchen.”

In comparing Morgan Growth with Primecap, a stellar Vanguard fund run by one manager, Wiener notes that the latter chalked up much stronger returns since 1990. Bottom line, according to Wiener: “I’d say the jury’s still out, even 18-plus years later, on whether multiple managers really do serve shareholders well.”

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