Index and Active investing: Vanguard and the New Frontier of Active ETFs

This case explores Vanguard’s strategic decision-making process as it considers entering the growing market for actively managed exchange-traded funds (ETFs). Set in 2024, the case places students in the position of Rodney Comegys, Vanguard’s global head of the Equity Index Group, as he evaluates whether the firm should launch a suite of fundamental active ETFs. Students are asked to analyze the implications of Vanguard’s decision in the context of its dual identity as a leader in both index and active mutual fund investing, with over $9.3 trillion in assets under management (AUM). The case is designed to introduce students to core investment concepts, including the difference between index investing and active investing, the Iron Law of Active Investing, and why an investor would decide to invest in an index versus active strategy. The case, along with the companion teaching note “Technical Note on Mutual Funds and Exchange Traded Funds (ETFs)” Harvard Business School case N9-225-057 (2024) provides a comprehensive examination of the structural differences between ETFs and mutual funds, including transaction prices versus fundamental value, intraday liquidity, tax efficiency, and transparency. Students learn how these differences influence the implementation of active and index investment strategies, and the trade-offs portfolio managers face in choosing one structure over the other. Finally, students are tasked with applying these principles to evaluate whether launching active ETFs aligns with Vanguard’s reputation as a low-cost, investor-centric firm and its long-term strategic goals.