[JumpCrisscross]

Be wary of reading this as "if endowments fired their managers and invested in Vamguard funds, they'd on average boost their returns". Perhaps true of the smaller, consistently-underperforming ones. But at the endowment side, a lot of planning goes into avoiding your size being felt by the markets.

[SilasX]

I think the whole point of the research is to see whether it's worth it to try not to be an underperforming one vs just taking the index returns. Obviously if you restrict your set to the ones outperforming then the index looks bad but you don't know who these are going to be.

(I know your point was also about size and the risk of distorting the market but I think you added in an unnecessary caveat there.)

[ucha]

Non sequitur. The point of active investment isn't to avoid having a market impact but to selectively pick over-performing assets. For example, assets indexed on the S&P 500 represent 2.2 trillions dollar; it's very easy to buy execution services to have limited market impact even if your position is in the tens of billions.

[xivzgrev]

That's a fair point. Suppose all the underperforming endowments switched to this strategy. All of that money would certainly lower returns.

[maxerickson]

What planning are the endowments able to do that Vanguard would not also be doing?

[xivzgrev]

Anything. Vanguard index funds just track the market so there's no hedging.

The main planning I could see overlap is executing large trades since they're both moving massive amounts of money.

[baking]

You are only moving massive amounts of money if you are moving massive amounts of money. Having massive amounts of money invested in ETF's doesn't mean you are executing massive trades if you are holding endowments and your only trades occur when you invest new gifts, withdraw a constant income stream, and rebalance your portfolio mix on a regular basis.

[aninhumer]

Surely Vanguard still need to make large trades whenever the make-up of the indices change?

When the (e.g.) 500th and 501st largest companies swap places, don't they need to sell one and buy the other to keep tracking a 500 share index?

[jonknee]

Yes, rebalancing days involve some volatility.

The way these index ETFs work though is that broker dealers can trade a basket of securities matching the index for a share of the ETF (and vice versa). Because of this price mismatches get fixed very quickly. S&P announces also changes ahead of time so while there is initial price movement it's not all instantaneous.

[baking]

The funds in the OP were Total Market Funds, not index funds.