MarketWatch's Chuck Jaffe compared funds with too many subadvisers to a box of crayons: Apart they look vibrant, but if you mix the shades together you get a drawing that looks like muck.

Jaffe examined Vanguard's [profile] Vanguard Explorer, a fund that will now have 7 different subadvisers . Jaffe writes that studies show investors consider four actively managed funds in an asset class a "closet index fund," which means that investors consider such a fund to hardly ever get performance that beats the index but will they will pay higher prices to get said performance.

The verdict from experts? The theory plays out with Vanguard Explorer.

Jaffe spoke to Dan Wiener, Editor of the Independent Adviser for Vanguard Investors, whom he quoted as saying, "They should have closed this thing to new investors years ago, kept it with fewer managers and given them a chance to deliver superior performance…It's not as good as their small-cap funds, and it's not giving you any reason to expect that to change in the future."

Morningstar's Russel Kinnel was also quoted by Jaffe, who gave a sparkling endorsement of the fund, saying, "You shouldn't be too unhappy with the fund because it hasn't been awful…But it hasn't given you much to be excited for."

To read more, click here.  

Edited by: Casey Quinlan


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