T Rowe Price versus Vanguard April 13, 2007Posted by pf in Expenses and Savings, Portfolio Allocation.
Tags: asset location, automatic asset builder, compare vanguard and t rowe price, debt, foreign currency, net worth, Portfolio Allocation, Retirement, vanguard diehards, vanguard vs t rowe price
In my monthly net worth update for March, I had mentioned that I wanted to do some research on Vanguard to see if they might be a better “home” for my portfolio. Mainly, my interest was whether or not the lower expenses translated into better overall returns.
I must admit, I was not looking forward to this. The main reason is that I thought it would be very time consuming (I am a bit lazy). Also, (you aren’t going to believe this) I had this uneasy feeling that I would indeed find that it made more sense and would have to go through a whole process of switching my assets out of T Rowe Price to Vanguard. Isn’t that ridiculous?
So, why the “uneasy feeling”? Essentially, I have been investing with T Rowe Price for some years now and have become very familiar with their mutual fund products, tools, etc. Essentially, my unease was due to the fact I would have to spend time “learning the ropes” at Vanguard and leave my “comfort zone” at T Rowe Price. Yes, I realize this is silly. I suspect it has similar origins to why people don’t easily change their phone (not cell) or insurance company…you just don’t feel like messing with it. Also, of course, the inertia or lazy factor is ever present. Anyway, I overcame my irrational behavior and lazy tendencies and did it.
Generally speaking, after having gone through my earlier asset allocation exercise, I am currently happy with the composition and allocation of my existing portfolio. Therefore, my first challenge was to find fund at Vanguard that were similar to my existing ones at T Rowe Price.
Initially, I started by using some of the premium mutual fund screeners at Morningstar to identify funds with a rating of 4 stars or more. I then plucked all of the Vanguard funds out of there and started looking at them to see what names seemed to have some relation to the funds I have. For example, one fund I have is small-cap value. Vanguard has a fund called small-cap value index – Ta Da! A match. As you can imagine, I ended up with a huge pile of funds and was still unsure whether they were all matches or not. I started thinking to myself that there must be a better way to do this, so I called Vanguard.
When I spoke to the Vanguard representative, I quickly got this sense he wasn’t too interested in talking with anyone today (you know what I’m talking about, don’t you?). Anyway, I told him I was a potential investor and wanted to find similar funds at Vanguard to what I already had. For the most part, his initial response was “I don’t know anything about T Rowe Price” and couldn’t help me. After some prodding, he asked me to tell him what kind of fund I had and he would look for potential matches. After about 10 minutes, I had another list of funds…some the same as my original list, plus some new ones.
Despite going through 2 rounds of this, I still felt like the process wasn’t a very good one. So, I began trolling the Vanguard website and finally found a tool that does exactly what I’m looking for, which is to Find similar Vanguard Funds. Granted, I probably could have found this earlier on my own, but I am a bit annoyed the Vanguard representative did not direct me to it. I don’t want to paint my recent Vanguard experience with a broad brush, but my first impression was not favorable and I kept thinking to myself it must be one of the downsides of having super low expenses. Again, this is probably not the case, but you know what they say about first impressions.
Now, armed and dangerous with my newly found tool, I start to plug in my various T Rowe Price funds and it spits out Vanguard alternatives…now we’re getting somewhere. My next step was to figure out what my criteria would be for comparision.
While I’m sure someone more savvy then I could think of multiple ways to make comparisons of the various funds, I chose to take a simple, straightforward approach. Essentially, I wanted to know what were the differences in expenses and total returns. As far as returns were concerned, I wanted to look at not just a year’s worth, but decided upon the most recent 5 years window. Why this time-frame? I wanted to get a “current” sense for how the fund has fared while still making sure I gave myself enough of a time horizon to smooth out any outliers (exceptionally high / low years). I also looked at the 10 year and since inception although I didn’t include it in my results (didn’t feel like looking it up / typing it all). Generally speaking, however, I don’t recall any wild swings in the results.
So, here is the summary of my findings:
|Fund||Name||Symbol||Expense %||5-Yr Return||Return Diff.|
|T Rowe Price||Capital Appreciation||PRWCX||.76%||11.48%|
|Vanguard||Balanced Index Fund||VBINX||.20%||7.23%||4.25%|
|Vanguard||LifeStrategy Moderate Growth||VSMGX||.26%||8.49%||2.99%|
|T Rowe Price||Emerging Markets Stock||PRMSX||1.25%||25.86%|
|Vanguard||Emerging Markets Index||VEIEX||.42%||24.89%||.97%|
|T Rowe Price||Equity Income||PRFDX||.71%||9.35%|
|T Rowe Price||Emerging Markets Bond||PREMX||1.03%||14.17%|
|T Rowe Price||Growth Stock||PRGFX||.72%||7.74%|
|T Rowe Price||High Yield||PRHYX||.77%||9.90%|
|Vanguard||High Yield Corporate||VWEHX||.26%||7.67%||2.23%|
|T Rowe Price||Mid-Cap Value||TRMCX||.82%||13.99%|
|T Rowe Price||Small-Cap Value||PRSVX||.84%||14.55%|
|T Rowe Price||International Equity Index||PIEQX||.50%||16.49%|
|Vanguard||Total International Index||VGTSX||.32%||17.79%||-1.30%|
Anywhere you see a difference with a positive result means that the T Rowe Price fund beat the Vanguard fund on the 5-Year Return. Those results that are negative and highlighted in orange are instances where the Vanguard fund won out.
Amazingly, the T Rowe Price funds fared better than I thought. Although they clearly have higher expense ratios, I feel that is was often rewarded with superior returns. Clearly, I could do better with US investments in Growth and Value stocks versus my current offerings. Upon closer inspection of the International Equity Index, I discovered that the Total International Index is probably not a good one for comparison as it invests in both US and Europe / Asia stocks (which probably explains why they call it “Total”). My current fund is heavily geared toward Western Europe (no US stocks). Nontheless, that Vanguard fund seems to be a good one.
Based upon my so called analysis, I don’t really feel the evidence compels me to switch from T Rowe Price to Vanguard. Although I’m probably a bit biased and not terribly unhappy with that result, I hope I have been fair in my assessment and it makes sense. I would LOVE for any diehard Vanguard types out there to challenge my approach and / or offer any suggestions where I may have not considered something, etc that may change the results.