Why is STAR not popular here?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Blue456
Posts: 2152
Joined: Tue Jun 04, 2019 5:46 am

Why is STAR not popular here?

Post by Blue456 »

Im curious. Why is STAR fund not popular here? Seems like it is pretty diversified fund of funds with decent international exposure but less than life strategy. It has pretty low expense ratio, it has beaten life strategy moderate fund and it actually had a lower drawdown in 2008.
z3r0c00l
Posts: 3809
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Why is STAR not popular here?

Post by z3r0c00l »

High expense ratio and/or because it contains some actively managed funds and as a fund of funds is more complex than needed by far. Why 3.8% explorer and 8% Windsor, and 8 other bits and pieces to just get a 60/40 ratio? That can be done with three or four funds.

I like the $1000 minimum though and if I had to buy this fund in my 401K I wouldn't be too upset, it isn't horrible, just not the best option for a cheap/simple investment strategy.
70% Global Stocks / 30% Bonds
User avatar
RickBoglehead
Posts: 7877
Joined: Wed Feb 14, 2018 8:10 am
Location: In a house

Re: Why is STAR not popular here?

Post by RickBoglehead »

Blue456 wrote: Thu Jun 17, 2021 5:42 am Im curious. Why is STAR fund not popular here? Seems like it is pretty diversified fund of funds with decent international exposure but less than life strategy. It has pretty low expense ratio, it has beaten life strategy moderate fund and it actually had a lower drawdown in 2008.
It is a fund of ten funds. Why does anyone need ten funds?

No, it doesn't have a low expense ratio. 0.31% is not low. Vanguard Balanced Index has 0.07%. That makes Star 4.4 times higher. Nothing low about it.

It is 63/37 stocks/bonds. Vanguard Balanced Index has 61/39. Basically the same.

Held in a taxable account, Star has another failing - a lower percentage of it's dividends are qualified as compared to Balanced Index, therefore generating more taxes.

Star's only advantage is the $1,000 minimum for a new investor until they amass $3,000 to transfer in to Balanced.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
student
Posts: 10764
Joined: Fri Apr 03, 2015 6:58 am

Re: Why is STAR not popular here?

Post by student »

As other have said, it has a lower minimum. I started investing in this fund over 20 years ago when I did not have enough for index funds. I have stop buying it long time ago.
User avatar
winterfan
Posts: 826
Joined: Mon Jan 05, 2015 10:06 am

Re: Why is STAR not popular here?

Post by winterfan »

RickBoglehead wrote: Thu Jun 17, 2021 6:02 am
Star's only advantage is the $1,000 minimum for a new investor until they amass $3,000 to transfer in to Balanced.
+1

I used this fund for my daughter's UTMA because it was all she had saved (well, $500, plus a parent match :D ), but I'll probably transfer out once she hits $3000.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Why is STAR not popular here?

Post by Grt2bOutdoors »

It’s a low cost option compared to other available fund of fund strategies held at other well known mutual fund companies. Why? To enable most people to benefit from the low-cost and there will always be a subset of population that can’t afford $3k entry fee and some who want active management and are willing to pay something lower than 50bps to get it. For those who question the percentage allocation per fund - that’s second guessing the portfolio manager, those who go into the fund leave it in the hands who’s profession they operate in.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
nisiprius
Advisory Board
Posts: 52216
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why is STAR not popular here?

Post by nisiprius »

In reality, it's hard to make any absolute judgements. To try to actually answer the question as best I can, addressing "lack of popularity" (not "merit"):

STAR may have been one of the very first funds-of-funds. ("STAR" stands for "Special Tax-Advantaged Retirement" meaning it was apparently created "for" 401(k) plans?) For a long time it got mentioned in the forum a lot because it was the only Vanguard fund you could purchase with a $1,000 minimum. Some years ago, they reduced the minimum to $1,000 across the Target Retirement series.

Based on my impressions of what is popular in the forum:

1) It's actively managed. Generally speaking the forum prefers index funds, especially total market index funds, as noted in the Bogleheads investment philosophy and the three-fund portfolio.

2) It's no longer the only Vanguard fund you can buy if you have less than $3,000 to invest.

3) The 0.31% expense ratio is called "low" by Morningstar, and is typical of low-expense actively-managed funds, but as a talking point it is high by what we expect nowadays from index funds. For comparison: some 60/40 funds-of-index funds, LifeStrategy Moderate (VSMGX) 0.13%, Target Retirement 2025 (VTTVX) 0.13%, Balanced Index (VBINX) 0.07%; and of course individual index funds are even lower, and one has to mention Fidelity's zero expense-ratio funds.

4a) It isn't Bogle-blessed. The actively-managed Wellington Fund gets some special love because of John C. Bogle's personal connections with it, as well being oldest of all mutual funds and thus the most comprehensive track record. I can't recall Bogle saying much about the STAR fund; maybe he made some passing mention in overviews ("in year X we introduced the Y fund...") (He did mention the Balanced Index Fund favorably.)

4b) It isn't Vanguard-blessed. Vanguard has long maintained a short list of "select" funds, "well-established, broadly diversified, low-cost funds selected by our Portfolio Review Department." It's an odd list; I don't know what it reflect other than (perhaps?) internal Vanguard politics. But the STAR fund is not on that list.

5) It's "too" conservative. The $1,000 minimum suggests it's targeted at young investors, but a 60/40 allocation is widely regarded as too conservative for young investors. For what it's worth, Morningstar's glide-path benchmarks, which actually do a good job of delineating what target-date funds really do, suggest that even a "conservative" investor would hold >60% stocks up to age 45, and an investor with "moderate" risk tolerance would stay above 60% up to age 55. (I don't necessarily agree personally.)

6) It's "tilted," and tilted the "wrong" way. The fund has a large growth style, and it is quite pronounced. With regard to size, it is distinctly tilted toward large caps. That is what it is and of course it has what has done best for a decade, but it is not a popular choice. The "purists" (like me) don't want any tilt, straight total market. The "factor" mavens want a small value tilt, exactly the opposite of STAR.

Image

7) To a jaundiced eye that's been reading the forum, the composition seems by no means "all-star." Again I am just talking "popularity" here. For whatever reason, mortgage-backed bonds like GNMAs are disliked (even though they've done fine), and (in hindsight) the Vanguard U.S. Growth Fund has conspicuously underperformed the Vanguard Growth index Fund... IMHO "stunk" is appropriate here, although other funds in the list have outperformed.

Source

Image

8) If we compare with a pure-index product, the Vanguard Balanced Index Fund, we can and probably will get drawn down a rabbit-hole of whether it's an appropriate comparison, but the point I want to make is that the STAR fund did outperform, but it did so by taking more risk as shown by "StDev" and "Max drawdown." The Sharpe and Sortino ratios measure risk-adjusted return, and STAR still outperformed--but not by very much.

Source

Image

A sane person who just liked the way the STAR fund is put together absolutely could prefer it--after all, in the past it has made, you know, more :moneybag :moneybag :moneybag --and if you want about 60/40 I don't see a thing wrong with it, but I hope I've given some explanations for lack of popularity.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
Toons
Posts: 14467
Joined: Fri Nov 21, 2008 9:20 am
Location: Hills of Tennessee

Re: Why is STAR not popular here?

Post by Toons »

Owned Star For 15 years
Taxable Account,Yes Taxable
Pleased .
We enjoy the semi annual dividends
And capital gains if paid out in December



:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
tibbitts
Posts: 23728
Joined: Tue Feb 27, 2007 5:50 pm

Re: Why is STAR not popular here?

Post by tibbitts »

I owned it for many years until I had enough to own some of the individual parts separately. Bogleheads have a unique world view where the expense ratio looks high. I once owned another fund-of-funds (TRPrice) for many years with an expense ration twice that of Star.

Now that I have a sufficient balance to own separate funds, I own way more than the number of funds Star contains (and that's just counting Vanguard), many of them active, although a couple fewer than a year ago.
Stubbie
Posts: 207
Joined: Fri May 29, 2020 6:09 am

Re: Why is STAR not popular here?

Post by Stubbie »

nisiprius wrote: Thu Jun 17, 2021 7:17 am In reality, it's hard to make any absolute judgements. To try to actually answer the question as best I can, addressing "lack of popularity" (not "merit"):
A sane person who just liked the way the STAR fund is put together absolutely could prefer it--after all, in the past it has made, you know, more :moneybag :moneybag :moneybag --and if you want about 60/40 I don't see a thing wrong with it, but I hope I've given some explanations for lack of popularity.
Another great post, nisiprius! I don't know how you have the time to do this much research in supporting your excellent answers to questions. Thanks for making the time!
BogleFan510
Posts: 1039
Joined: Tue Aug 04, 2020 2:13 pm

Re: Why is STAR not popular here?

Post by BogleFan510 »

removed by author
Last edited by BogleFan510 on Fri Jul 09, 2021 5:36 pm, edited 1 time in total.
aristotelian
Posts: 12277
Joined: Wed Jan 11, 2017 7:05 pm

Re: Why is STAR not popular here?

Post by aristotelian »

I don't want/need an all in one fund. If I want all the components I can buy them myself.

I don't see the need to pay .31% for an all in one fund. There are cheaper alternatives.

Heavy on corporate bonds, no Treasuries. Taking more risk than I prefer on the bond side.

Contains a bunch of active funds that I wouldn't want to buy given the choice.
tibbitts
Posts: 23728
Joined: Tue Feb 27, 2007 5:50 pm

Re: Why is STAR not popular here?

Post by tibbitts »

aristotelian wrote: Thu Jun 17, 2021 9:27 am I don't want/need an all in one fund. If I want all the components I can buy them myself.

I don't see the need to pay .31% for an all in one fund. There are cheaper alternatives.

Heavy on corporate bonds, no Treasuries. Taking more risk than I prefer on the bond side.

Contains a bunch of active funds that I wouldn't want to buy given the choice.
Interestingly, for many of us the appeal of active balanced funds (W & W, Star) for retirement accounts is the relative (never complete) lack of those annoying government bonds, where we're paying for benefits we can't use.
Makefile
Posts: 2657
Joined: Fri Apr 22, 2016 11:03 pm

Re: Why is STAR not popular here?

Post by Makefile »

Remember that for many years the annual IRA limit was only $2,000, and $250 (!) for a non-working spouse.
As the limit has increased the appeal of a special fund with a low minimum has dropped, I suppose. Especially when Fidelity and Schwab don't have a minimum investment on their mutual funds.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Why is STAR not popular here?

Post by Grt2bOutdoors »

I own STAR in a tax deferred account. Some years it’s done better than Wellington but for obvious reasons. Growth tilted.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
Portfolio7
Posts: 1128
Joined: Tue Aug 02, 2016 3:53 am

Re: Why is STAR not popular here?

Post by Portfolio7 »

All I can say is that I've always been positively predisposed to it.

Never owned much because it wasn't an option, and when it became an option I had other plans - but I always thought it was a solid fund. I have long kept an eye on it's performance.
"An investment in knowledge pays the best interest" - Benjamin Franklin
Northern Flicker
Posts: 15365
Joined: Fri Apr 10, 2015 12:29 am

Re: Why is STAR not popular here?

Post by Northern Flicker »

Blue456 wrote: Thu Jun 17, 2021 5:42 am Im curious. Why is STAR fund not popular here? Seems like it is pretty diversified fund of funds with decent international exposure but less than life strategy. It has pretty low expense ratio, it has beaten life strategy moderate fund and it actually had a lower drawdown in 2008.
It has its followers, and the ER is low for active managenent It is riskier than a similar index-fund based balanced portfolio. For instance, the bond portfolio is 1/3 GNMAs and 2/3 corporate bonds, which is riskier than a total market bond index fund.

The majority of BH users are not interested in actively managed funds, so the Star fund is less popular. But if you want an actively managed balanced fund, the Star fund or Wellington fund would be a good choice.

Also, LifeStrategy Moderate Allocation VSMGX used to have an active component, the now defunct Vanguard Asset Allocation fund, vaapx, a tactical asset allocation fund. As a result, VSMGX had a higher percentage allocation to stock than the Star fund back in early 2008. This highlights one of the problems of using backtests for actively managed funds to measure performance differences.
Last edited by Northern Flicker on Thu Jun 17, 2021 4:32 pm, edited 1 time in total.
User avatar
nisiprius
Advisory Board
Posts: 52216
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why is STAR not popular here?

Post by nisiprius »

So I did find something John C. Bogle had written about the fund.

John C. Bogle, Stay the Course, p. 84:
1985: STAR Fund. The fund-of-funds structure (mutual funds whose portfolio holdings consist solely of other mutual funds) had always appealed to me. But I found the layering-on of management fees ethically distasteful and financially absurd. So we started our own Vanguard STAR Fund, charging zero fees on the fund itself. Its investors would pay only the fees on the underlying Vanguard funds.

STAR was an acronym that stood for "Special Tax-Advantaged Retirement" fund. The SEC reiected our use of that name, but the STAR name stood. It still stands. Its balanced stock/bond portfolio consists solely of 11 actively managed Vanguard funds. Its returns have paralleled those of Vanguard's other balanced funds. Its assets in mid- 2018 totaled $22 billion.
Assuming Bogle wasn't mistaken, there are currently only ten funds in it. I wonder what happened? I would say that "Its returns have paralleled those of Vanguard's other balanced funds" is fairly faint praise.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Why is STAR not popular here?

Post by Grt2bOutdoors »

nisiprius wrote: Thu Jun 17, 2021 4:05 pm So I did find something John C. Bogle had written about the fund.

John C. Bogle, Stay the Course, p. 84:
1985: STAR Fund. The fund-of-funds structure (mutual funds whose portfolio holdings consist solely of other mutual funds) had always appealed to me. But I found the layering-on of management fees ethically distasteful and financially absurd. So we started our own Vanguard STAR Fund, charging zero fees on the fund itself. Its investors would pay only the fees on the underlying Vanguard funds.

STAR was an acronym that stood for "Special Tax-Advantaged Retirement" fund. The SEC reiected our use of that name, but the STAR name stood. It still stands. Its balanced stock/bond portfolio consists solely of 11 actively managed Vanguard funds. Its returns have paralleled those of Vanguard's other balanced funds. Its assets in mid- 2018 totaled $22 billion.
Assuming Bogle wasn't mistaken, there are currently only ten funds in it. I wonder what happened? I would say that "Its returns have paralleled those of Vanguard's other balanced funds" is fairly faint praise.
Vanguard Morgan Growth was merged into U.S. Growth in the first half of 2019. That’s the 11th fund.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Angst
Posts: 2968
Joined: Sat Jun 09, 2007 11:31 am

Re: Why is STAR not popular here?

Post by Angst »

Blue456 wrote: Thu Jun 17, 2021 5:42 am Im curious. Why is STAR fund not popular here? Seems like it is pretty diversified fund of funds with decent international exposure but less than life strategy. It has pretty low expense ratio, it has beaten life strategy moderate fund and it actually had a lower drawdown in 2008.
I'm fairly old, and if my memory were better, I might have some interesting stories to tell. As it is though, I can still recollect a few bits and pieces of the 1980's, and one or two of those pieces bring to mind the investment manager John Neff. (Did I get his name right?) Highly respected at the time, I think, for his Windsor fund, something of an active small or mid-cap value fund at the time that had good numbers for a while. And part of this vague recollection includes the notion that when the STAR fund first came out it might have been considered an easy way to access the magic touch of John Neff for only $1,000. Anyone recall this thinking? (Was it possibly even less than $1,000 back then?) And wasn't Windsor once closed as well (Windsor II was created to satisfy demand at some point) and so perhaps the STAR fund was considered to be a way to get some of that secret sauce at Windsor I? But my memory is foggy, and I'm told it's time for me to go to bed. Goodnight fellow Bogleheads.
User avatar
RickBoglehead
Posts: 7877
Joined: Wed Feb 14, 2018 8:10 am
Location: In a house

Re: Why is STAR not popular here?

Post by RickBoglehead »

Northern Flicker wrote: Thu Jun 17, 2021 3:28 pm
Blue456 wrote: Thu Jun 17, 2021 5:42 am Im curious. Why is STAR fund not popular here? Seems like it is pretty diversified fund of funds with decent international exposure but less than life strategy. It has pretty low expense ratio, it has beaten life strategy moderate fund and it actually had a lower drawdown in 2008.
It has its followers, and the ER is low for active managenent It is riskier than a similar index-fund based balanced portfolio. For instance, the bond portfolio is 1/3 GNMAs and 2/3 corporate bonds, which is riskier than a total market bond index fund.

The majority of BH users are not interested in actively managed funds, so the Star fund is less popular. But if you want an actively managed balanced fund, the Star fund or Wellington fund would be a good choice.

Also, LifeStrategy Moderate Allocation VSMGX used to have an active component, the now defunct Vanguard Asset Allocation fund, vaapx, a tactical asset allocation fund. As a result, VSMGX had a higher percentage allocation to stock than the Star fund back in early 2008. This highlights one of the problems of using backtests for actively managed funds to measure performance differences.
Explain why Star should be selected over Balanced Index...
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Nahtanoj
Posts: 131
Joined: Tue Apr 04, 2017 7:01 am

Re: Why is STAR not popular here?

Post by Nahtanoj »

Advantages over Balanced Index:

* 20 percentage points of the 62 in equities are in international, giving broader diversification.
* The constituent active funds on average have more than earned their management fees over the last 10 - 15 years.
* The constituent active funds are sufficiently diverse in style and strategy - and sufficiently numerous - that regular rebalancing within the fund should tend to improve risk adjusted returns - and more so than in a fund like Balanced Index that rebalances among fewer components.

But for a taxable investor, the active management and greater quantity of rebalancing going on within the fund create a tax hurdle such that Balanced Index or - even better - Lifestrategy Moderate Allocation — may have the edge in a taxable account.
Northern Flicker
Posts: 15365
Joined: Fri Apr 10, 2015 12:29 am

Re: Why is STAR not popular here?

Post by Northern Flicker »

RickBoglehead wrote: Thu Jun 17, 2021 9:23 pm
Northern Flicker wrote: Thu Jun 17, 2021 3:28 pm
Blue456 wrote: Thu Jun 17, 2021 5:42 am Im curious. Why is STAR fund not popular here? Seems like it is pretty diversified fund of funds with decent international exposure but less than life strategy. It has pretty low expense ratio, it has beaten life strategy moderate fund and it actually had a lower drawdown in 2008.
It has its followers, and the ER is low for active managenent It is riskier than a similar index-fund based balanced portfolio. For instance, the bond portfolio is 1/3 GNMAs and 2/3 corporate bonds, which is riskier than a total market bond index fund.

The majority of BH users are not interested in actively managed funds, so the Star fund is less popular. But if you want an actively managed balanced fund, the Star fund or Wellington fund would be a good choice.

Also, LifeStrategy Moderate Allocation VSMGX used to have an active component, the now defunct Vanguard Asset Allocation fund, vaapx, a tactical asset allocation fund. As a result, VSMGX had a higher percentage allocation to stock than the Star fund back in early 2008. This highlights one of the problems of using backtests for actively managed funds to measure performance differences.
Explain why Star should be selected over Balanced Index...
I made no claim that it should be. (I likely would prefer it due to the lack of global diversification in the balanced index fund, but I don't think we need another thread on global equity diversification.)
User avatar
A440
Posts: 1222
Joined: Mon Sep 02, 2013 7:46 am
Location: NJ

Re: Why is STAR not popular here?

Post by A440 »

We use it for our kids UTMA accounts. It has served them well over the years. When they take control of the account at age 21 I may suggest moving it to another fund depending on how they plan to use the money. If they don't need the money for college, I'm hoping they can use it for a downpayment on their first home. No college debt and a downpayment on their first home might be the best monetary gift we could ever give them in their early 20's.
I don't know what the future holds, but I know who holds my future.
Post Reply