[stoxtrader]

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Myth #2 – You can’t predict which managers will outperform.

They insist you buy your equity exposure via a relatively passive index, pay Vanguard’s moderately expensive indexing fees [when compared to BGI or SSgA] to purchase a market-weighted index, and guarantee that you underperform the SPX or Wilshire 5000. You guarantee yourself sub-market returns in perpetuity, but at least you’ll get a relative return that is close to ‘the market.’

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First of all, Vanguard ETFs are the cheapest ER in the business for every asset class they cover AFAIK.

Second, Vanguard has positive tracking error because of advanced management/transaction skill. For example, Vanguard's index funds outperformed their index by .9% after fees from 1996-2000. I wish I had more data, but I'm not that motivated.

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this is actually something I can chime in on. Generally large indexers will get a rebate on their business because depending on how it is done, it can be lucrative for the executing broker.

It is not uncommon at all for a broker to make a risk bid of close +/- 10,20,30 bps to the principal in their favor as a way to lockup the business. This will have market impact most likely but it will help the indexer beat it's index.