3 Low-Cost Passive Vanguard Mutual Funds For Robust Returns

In an environment when U.S. based active equity funds continue to feel investor’s wrath, it’s the passive funds that are attracting investor attention. Huge inflows into passive funds are helping the overall equity funds to register inflows. Separately, funds managed by Vanguard, one of the leading fund managers, registered the highest inflow in recent times, easily outpacing its other competitors.

In this scenario, adding favorably ranked passive mutual funds that are managed by Vanguard to one’s portfolio may boost returns in the days ahead.

Healthy Inflows into Passive Funds

According to a recent Morningstar report, actively managed U.S. equity funds saw an outflow of $32.93 billion, which was preceded by a withdrawal of $21.7 billion in June. Unlike active funds, investors poured in nearly $33.81 billion into passive funds, significantly higher than June’s inflow of $8.7 billion. The surge in inflows in passive U.S. equity funds led total inflows in this category to $877 million.

Moreover, all the categories under passive funds registered inflows, most of the active fund categories posted outflows in July. The report also showed that passively managed U.S. equity funds registered a huge inflow of $163.6 billion over the 12-month period ending in July, in contrast to a massive outflow of $211 billion witnessed by actively managed funds. Moreover, taxable bond funds, which emerged as one of the few categories registering inflows among active funds categories, registered a total inflow of $34.0 billion in July with passive ones attracting the major part of it.

Advantage of Passive Funds over Active Ones

Passive funds are expected to be less risky compared to their active counterparts. Passive funds witness less trading activity than active portfolios and thus are poised to avoid the risk of human errors faced by active funds. Meanwhile, a lower expense ratio  compared to active funds also played an important role in boosting the demand for passive funds in the recent times. As per Lipper, equity funds that are actively managed have an average expense ratio of 1.4%, significantly higher than 0.6% recorded by their passive counterparts.

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