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An Aggressive Case for Passive Management

The pilot of Vanguard's index funds, Gus Sauter, talks about beating the S&P 500, active management, and respect.


Index-fund managers have long been the Rodney Dangerfields of the money-management business. They "don’t get no respect," because they try to track market averages, not beat them. How hard can that be?

One index-fund manager, however, has used a combination of ability and good fortune to prove there is more to running an index fund than buying and holding a predetermined list of stocks. Gus Sauter, manager of the Vanguard 500 Index Fund (VFINX), has regularly surpassed his benchmark, the S&P 500 index. Thanks to a bull market and savvy maneuvering, Sauter has beaten his bogy the last two years in a row. In 1999 the Vanguard 500 edged the index by 3 basis points. (One basis point equals one-hundredth of a percentage point.)

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Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.