Once upon a time, Explorer was a solid, aggressive small-company stock fund. Now it’s “a poster child” for the “watered-down” results that come from funds that have multiple managers, says Dan Wiener, editor of The Independent Adviser for Vanguard Investors, a newsletter. Wiener is referring to Vanguard’s penchant for divvying up the assets of a large fund among multiple subadvisers. In this case, Explorer has 14 managers who hail from seven subadvisers. Vanguard believes the different stock-picking approaches of the advisory firms will complement each other and ultimately bolster the fund’s performance.
But Explorer’s results have been subpar. In eight of the past 11 calendar years (including so far in 2016), the fund has trailed its chosen benchmark, the Russell 2500 Growth index (which tracks stocks of 2,500 fast-growing small companies). On a trailing basis, it falls behind, too. Over the past 10 years through October 11, Explorer lagged its bogey by an average of 1.2 percentage point per year.
Explorer’s multi-manager setup has other problems. For one thing, Vanguard doesn’t publish each firm’s results separately. Moreover, subadvisers have taken control over a portion of the fund’s assets at different times (one firm, Wellington Management, came on as early as 1994; the latest additions, in 2014). Since they all started working as a group in June 2014, the fund has returned 3.9% annualized, trailing the Russell 2500 Growth index by an average of 1.4 percentage points per year.
A better bet, if it is available in your plan, is Vanguard Small Capitalization Index (NAESX). It has outpaced Explorer in seven of the past 11 calendar years (including so far in 2016). As its name indicates, the fund simply seeks to mimic an index—in this case, the CRSP US Small Cap index (CSRP stands for Center for Research in Security Prices).
Source: Kiplinger
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