Exploring the “Good Guys”: An Empirical Study of Vanguard’s Actively Managed Domestic Equity Mutual Funds

Abstract

There is a great deal of literature exploring the merits of active management. With few exceptions, the consensus has been (not surprisingly) that after fees, most active managers do not outperform an appropriately selected passive strategy. These studies generally include the entire population of mutual funds, despite the fact that many of the funds have little or no appeal to investors. This article explores a subset of active managers, Vanguard’s actively managed mutual funds, to determine if “good guy” active managers, i.e., active managers with positive attributes like low expenses and low turnover, do in fact generate alpha. While the results vary across individual funds, when aggregated, all tests yield positive alphas, many of which are statistically significant, suggesting that the good guys can (and do) win.