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Individually, each color of the rainbow is vibrant and unique.

Mix them all together and you get a color that looks like mud.

The same thing can happen in building a portfolio with a lot of different investment managers, particularly when all of those stock jockeys are operating in the same space.

The problem is that it can be remarkably hard to determine if you’re seeing the colors or the mess.

For proof, one need look no further than Vanguard Explorer, which muddied up its management situation (again) recently when it announced that it was bringing a new subadviser into the fold, giving the fund seven different bosses, or one for each main color in the rainbow.

Vanguard isn’t just the biggest manager in the fund business, but one of the best, a shareholder-friendly company with low-cost funds that typically stick to their knitting, filling a niche in the portfolio and giving investors what they expect.

Vanguard Explorer (VEXPX) isn’t such a bad fund that it’s going to blow up anyone’s portfolio and send them to the poorhouse; the phrase “You could do a lot worse,” applies, even if no fund company would want that as an ad slogan.

That’s what makes Explorer and interesting case study, because even a satisfied customer could wonder whether they are getting what they want and pay for from the fund.

To see why that is, let’s set our compass for over the rainbow and into Explorer.

Vanguard Explorer is a small-cap growth fund with more than $11 billion in assets — huge for a fund in that asset class — that hires out the money management to outside experts.

The fund has had at least five subadvisers for more than a decade now, periodically adding or subtracting a manager as performance warrants. In adding Stephens Investment Management Group recently, the money in Explorer is again spread among seven managers.

The problem is that countless studies show that once an investor has four actively managed funds in an asset class, they have something called a “closet index fund,” where they are never likely to get performance that beats the index, but they will pay higher prices to get that disappointing performance.

If it applies to four separate funds, then why not seven different “sleeves” within a single fund?

“There’s something to be said for the multimanager or rotation of managers, where if someone falters you fire him and bring in someone else whose style is cresting,” said Geoff Bobroff of Bobroff Consulting in East Greenwich, R.I. “But running new managers in and out hasn’t worked terribly well.”

Dan Newhall, a Vanguard principal involved in the selection of outside money managers, says that the performance has not been that of a “closet index,” because it hasn’t tracked the benchmark particularly closely.

That’s true, but something of a technicality; in truth, Explorer has lagged Vanguard Small Cap Growth over the last decade by an average of more than 1.5 percent per year. So while Explorer checks out with three stars and a neutral rating from Morningstar, the company’s index fund in the same space delivers four stars and gets a silver analysts’ rating.

With some of its other active issues, Vanguard has kept a smaller management team or closed the fund to additional investors, or both.

“They should have closed this thing to new investors years ago, kept it with fewer managers and given them a chance to deliver superior performance,” said Dan Wiener, editor of the Independent Adviser for Vanguard Investors. “It’s not as good as their small-cap index funds, and it’s not giving you any reason to expect that to change in the future.”

Morningstar’s Russel Kinnel noted that investors aren’t taking much extra risk in the fund — since the expenses are low for an actively managed issue — but they’re not getting superior performance.

“You shouldn’t be too unhappy with the fund because it hasn’t been awful,” Kinnel said, “but it hasn’t given you much to be excited for.”

Newhall said that while some experts may prefer to have fewer managers, Vanguard is looking for idiosyncratic risk — for each manager to take different risks to try to generate results in the small-cap space — and noted that the fund has beaten the Lipper Small-Cap Growth Fund Index, meaning it has done better than a lot of funds that rely on simply one manager.

“We think this gives the best chance of getting performance that is better than a single manager and better than the index,” Newhall said.

Maybe, but every performance measure that suggests Explorer is OK is countered by one which says investors aren’t getting what they pay for. That doesn’t make the fund bad, but it doesn’t make it great either.

In short, if you’re going for the rainbow and wind up feeling like you’ve gotten the mud, it’s time to explore other options to get the financial results you’re hoping for.

Chuck Jaffe is senior columnist for MarketWatch. He can be reached at or at P.O. Box 70, Cohasset, MA 02025-0070.

Copyright 2013, MarketWatch