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Vanguard drops AllianceBernstein

BOSTON (MarketWatch) -- Vanguard has dropped AllianceBernstein as a sub-advisor to its mutual funds, a move which has most observers and investors thinking: "It's about time."

The Valley Forge, Penn.-based fund giant announced Thursday that AllianceBernstein Holding (AB) would no longer be part of the management group for Vanguard Windsor Fund (VWNDX) , International Value Fund (VTRIX) , or Global Equity Fund (VGEQX) . See Vanguard statement.

While patience is admirable -- it allows Vanguard to arrange long-term sub-advisory deals with some of the best firms in the business -- Vanguard could have made a clean break with AllianceBernstein in late 2010, when it dumped the firm as sub-advisor on its U.S. Growth (VWUSX) fund. That fund had been a laggard under AllianceBernstein's stewardship for nine years.

Technically, the growth team fired in 2010 was from the old Alliance Capital side of the business, whereas the managers dumped now were value managers from the old Bernstein side of the firm. That distinction is why Vanguard gave the firm such a long leash, leeway the management company could not take advantage of.

For AllianceBernstein, the loss of Vanguard is another blow to the firm's image. The best way to recover would be for its own funds to have a run of superior performance, proving Vanguard wrong in giving up on management. Alas, over the last five years, Morningstar Inc. data shows that the firm has, on average, slightly underperformed the averages.

So while AllianceBernstein fund investors may hope for the turnaround, they might also want to consider whether Vanguard's exit confirms what their account statements have been showing them about the firm's ability to deliver superior results.

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