Episode 368: Jim Rowley & Andy Maack - Implementing Index Funds at Vanguard

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Jul 31, 2025

Join Jim Rowley, Vanguard's Global Head of Investment Implementation Research, and Andy Maack, Head of US Equity Portfolio Management, as they dissect the complexities of index funds. They reveal that these funds aren't as passive as they seem, discussing real-time trading decisions and active strategies that enhance returns. The duo explores risk management during secondary offerings, challenges the traditional active versus passive labels, and shares insights on how thoughtful execution adds real investor value. Get ready to rethink what you know about indexing!

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INSIGHT

Index Funds Are Actively Managed

Index funds involve active decisions like rebalancing, risk management, and strategy adjustments.
Maintaining an index is complex and far from a "set it and forget it" approach.

INSIGHT

Vanguard's FX Desk Evolution

Vanguard's FX desk developed from a portfolio manager's curiosity and evolved into a global operation.
Self-executing FX trades have saved hundreds of millions in costs over time.

ADVICE

Minimize Trading Price Impact

Use limit on close orders to control price impact when trading at benchmarks.
Consider trading before or after the close and spreading residual trades over days to reduce market impact.

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What if index funds weren’t as “passive” as you think? In this episode of the Rational Reminder, we are joined by Jim Rowley, Global Head of Investment Implementation Research, and Andy Mack, Head of US Equity Portfolio Management at Vanguard. These two experts offer a rare, behind-the-scenes look into what it really takes to run some of the world’s largest index funds—and it’s far from “set it and forget it.” From real-time trading decisions to managing $7 trillion globally, Jim and Andy walk us through how Vanguard implements index strategies with a precision that rivals any active manager. They challenge the traditional labels of passive versus active and show how thoughtful implementation, securities lending, FX execution, and IPO participation can add real value for investors—even in low-cost index products.

Key Points From This Episode:

(0:04) Why Vanguard’s team was the ideal follow-up to Marco Sammon’s index research

(1:55) Why index funds aren’t as simple as they seem: rebalancing, risk, and strategy

(2:50) “Passive” is a misnomer: why index fund management involves active decisions

(4:42) What excites Jim and Andy about index fund implementation

(7:16) Risk-managed opportunities: how Vanguard adds value during secondary offerings

(8:02) Debunking the active vs. passive label—think in terms of strategy characteristics

(9:41) The subjective calls behind index construction and market definitions

(12:00) The goal of a market-cap weighted index fund and how Vanguard tracks it

(13:28) Why tracking error matters—and when it becomes a business risk

(15:48) Indexing’s advantage: predictable relative performance for portfolio construction

(16:15) The real complexity of daily index fund trading and execution strategy

(17:16) Vanguard’s unique approach: PMs and traders are the same person in equities

(18:52) The scale of VTI: how 24 global PMs manage trillions across time zones

(20:48) Why Vanguard’s culture treats every trade like it’s client money

(22:24) Andy’s story of building Vanguard’s FX desk and the hundreds of millions saved

(24:04) Quant vs. human judgment in index implementation—why both matter

(26:50) How fixed income index funds balance risk, liquidity, and security selection

(27:46) Tools traders use to minimize price impact: algos, limits, and timing strategies

(29:09) How index rebalancing impact has decreased thanks to market evolution

(31:36) The hidden mechanics behind index inclusion/exclusion and price effects

(33:40) Do index funds distort prices? Vanguard’s view on elasticity and ownership

(35:55) Stock dispersion and the case for continued price discovery

(38:09) Why using passive funds doesn’t mean being a passive investor

(43:15) Jim’s research: how “passive” funds are actively deployed by advisors

(50:43) How Vanguard handles IPOs, buybacks, and market composition shifts

(54:45) Active corporate action management: cash mergers, elections, and strategy

(55:27) Responding to Marco Sammon’s critiques on market timing and turnover

(58:55) What would change if rebalancing were less frequent?

(1:00:34) How securities lending and market advocacy add ongoing value

(1:04:42) Should Vanguard launch a flexible, non-indexed total market fund?

(1:06:26) Andy’s biggest concern: system risks and rebalance day challenges

(1:07:08) Jim’s biggest concern: index funds aren’t a free pass—investors still need discipline

(1:08:03) Defining success: alignment with investors and living a balanced life

Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.

Rational Reminder Website — https://rationalreminder.ca/

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemind

Rational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.ca

Benjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Dan Bortolotti — https://pwlcapital.com/our-team/

Dan Bortolotti on LinkedIn — https://ca.linkedin.com/in/dan-bortolotti-8a482310

Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com).