Is Vanguard Signaling that Evidenced Based Investing is Better than Indexing?

Vanguard Web SiteThe Vanguard Group, Inc “Investment Giant” has built their investment success on two fundamental tenets: 1) Keep costs as low as possible; 2) Don’t try to beat the market, instead try to keep up with the market. Today, Vanguard’s investment approach would be called Index investing and would be based on tracking market benchmarks, such as the S&P500.

In an almost shocking announcement that is still rippling though Wall Street, it was announced this past week that Vanguard is now going to offer a set of fund investment choices based on the Center for Research in Security Prices (CRSP) at the University of Chicago Booth School of Business. (Readers may remember our recent post about the CRSP a few months ago.)

Wall StreetWhy is this such a shock to Wall Street? The announcement attempts to bury the most shocking item about Vanguard’s decision by leaving this tidbit to the very last paragraph:

“Vanguard provided development funding for connecting to CRSP Indexes; however, the methodologies for the CRSP Indexes were developed by CRSP, and the indexes are owned and operated independently by CRSP. Accordingly, the CRSP Indexes will be available for license as are all CRSP data products.”

In layman’s terms, what this says is Vanguard will now take a back seat to investment decisions and put professionals at CRSP in charge. Vanguard has merely paid for the creation of the systems and processes to create and license Funds that will follow the CRSP’s fifty years of fine-tuning their unique methodology.

In professional’s terms, this signals a huge change in one of the most successful investment giant’s approach. Are they going to move quickly and dramatically away from plain old Index investing? Obviously not. But, it is pretty clear that they are acknowledging the historically superiors benefits of a Passive Fund investment model based on the Fama French Three-Factor Model, which is the basis of DFA’s Funds.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Lion’s Share U.S. Financial Services and Cambridge are not affiliated. Indices mentioned cannot be directly invested in. Past performance is no guarantee.  When you access other linked websites, you assume total responsibility and risk of the websites you are linking to caveat emptor. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. Article are provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services in Alabama, Florida, Georgia, and Tennessee. No offers may be made or accepted from any resident outside the specific state(s) referenced.