Academic Research

The Active-Passive Debate: Bear Market Performance
by Vanguard Investment Counseling & Research

From the Executive summary. We often hear of the benefits active equity management can provide during periods of market stress. One familiar point is that an active manager can alter a portfolio’s makeup to invest in defensive stocks or in cash to protect against, or benefit from, an impending or ongoing bear market, while an index fund manager must adhere to the stated objective of tracking a benchmark’s return regardless of market direction. However, when related data is examined in detail, we find little evidence to support the theoretical benefits of active management during periods of market stress-in fact, active managers have not consistently delivered superior performance relative to a benchmark during such periods. —Click to read the whole thing.

The Case for Indexing
by Vanguard Investment Counseling & Research

From the Executive summary. An index is a group of securities designed to represent a broad market or a portion of the broad market. By reflecting the performance of a particular market, an index provides investors with a benchmark for that market’s performance. Because indexes are, by definition, intended to mirror the market, they are constructed to be market-capitalization-weighted. An indexed investment strategy such as an index mutual fund or an index-based exchange-traded fund (ETF) tracks the performance of an index by assembling a portfolio that invests in the same group of securities, or a sampling of the securities, that compose the index. — Click to read the whole thing.