Adviser Investments Launches Financial Planning Podcast

Adviser Investments Launches ‘The Adviser You Can Talk To’ Podcast

Adviser Investments Launches ‘The Adviser You Can Talk To’ Podcast

In February, we debuted our newest podcast series, The Adviser You Can Talk To, discussing investment topics that matter for every investor, from the curious novice to the most seasoned professional.

The first five episodes of The Adviser You Can Talk To podcast now available feature Adviser Investments Chairman Dan Wiener and Director of Research Jeff DeMaso, along with members of our team of experienced investment professionals, discussing timely and informative subjects for investors of all types. From blue-chip U.S. stocks and individual bonds to the risks and rewards of emerging markets, The Adviser You Can Talk To podcasts provide on-demand insight on a broad range of topics.

All of Adviser Investments’ podcasts are available on our website, audio platforms including iTunes, SoundCloud and YouTube, and our Facebook and Twitter feeds. Come check it out!

Vanguard Sector Funds Swapping Stocks

As some lines of business evolve and others go the way of the dodo, so too must the categories that classify them—and there are market taxonomists who keep track, periodically redrawing connections on the stock sector tree of life. Last week, Vanguard announced that three of its sector index funds—Consumer Discretionary Index, Information Technology Index and Telecommunication Services Index—would change as a result of revisions to the benchmark indexes they attempt to mimic.

The planned adjustments had their genesis in November 2017, when S&P Dow Jones and MSCI (two of the larger stock market index providers in the world) revealed the results of their annual review of the Global Industry Classification Standard (GICS) structure, which is a system for sorting companies into discrete sector and industry (or subsector) groups. These categorizations can impact sector index funds and exchange-traded funds (ETFs), which are mandated to own most if not all of the stocks in a given benchmark—when a benchmark changes, funds tracking it typically must change their portfolios too.

Following the GICS review, S&P Dow Jones and MSCI expanded their telecommunications services sector and renamed it “communication services.” The broadened category will now include companies that enable communication and the distribution of content and information through various types of media. This includes not just telecom companies, but also streaming entertainment and gaming platforms, online advertisers, search engines, and online advertisers and marketplaces.

So what does this mean for investors? It’s a somewhat significant change for all three indexes concerned and those funds that track them. Among the consumer discretionary stocks slated move to the communication services sector are Comcast, Naspers, Netflix and TripAdvisor. And Alphabet (Google) and Facebook from the information technology sector will also be migrating over. All of these names are among the 10 largest holdings of their former sector indexes, and we estimate they will appear in communication services’ top 10 holdings following the transition, in effect overhauling the index’s composition. (MSCI will be publishing a complete list of all changes in July 2018.)

Likewise, investors in Vanguard Telecommunications Services Index fund will see it renamed Communication Services Index in the second quarter and its portfolio, along with those of Vanguard’s Consumer Discretionary Index and Information Technology Index funds will transition to the new indexes over a four-month period ending in September 2018.

The move will be overseen by Vanguard’s Equity Index Group, which is going to use transition indexes to create a glide path from the current holdings to the updated list of stocks beginning in the second quarter. The transition is expected to be complete by the end of September, at that point, Vanguard will mothball the custom indexes and switch to tracking their revamped MSCI benchmarks.

Source: Vanguard.

Vanguard is carrying out the changes at these funds in this way for two primary reasons. First to prevent “front-running” of the necessary trades—if traders know when an index will be buying or selling a stock, they can time exchanges of their own to profit off of an index’s forced buying or selling.

How? If they knew the timing, traders would stock up on shares of, say, Netflix in the days before MSCI flips the switch and moves to the new index composition on the presumption that when Vanguard Communication Services Index—and all other telecom sector funds tracking the MSCI index—are forced to buy it the stock price will jump. Vanguard, smartly, wants to avoid this, thus the months-long transitionary period where shares of the new stocks will be accumulated over time until they reach the rejiggered benchmark’s target allocations. (That said, the firm asserts that it trades strategically to mitigate the costs associated with traders front running more routine index deletions and additions as well.)

The other benefit of a gradual shift is that it gives Vanguard the opportunity to manage tax implications for shareholders, which the firm has done fairly effectively with other index transitions for its funds and ETFs over the years.

When more information becomes available this summer, investors in these three sector funds may want to take a second look at their overall portfolio exposures and make sure that the changes won’t have any unintended consequences. Investors in broader index funds and actively managed funds likely won’t notice any difference in their portfolios as a result. Broad index funds own all or most of the stocks in their benchmark, so a stock moving from one sector to another is just a change on paper. Meanwhile, active managers typically have freer rein in selecting stocks for their portfolios, and in most cases would not be forced by mandate to buy or sell a stock based on its sector classification.

Fidelity Names New Equity Chiefs

Earlier this week, Fidelity revealed that it has named Pam Holding and Tim Cohen as co-heads of its Equity Division, working under Asset Management President Charlie Morrison. The promotions are part of a succession plan for Brian Hogan, president of the Boston fund giant’s Equity and High Income division.

Both will be transitioning to their new roles for the remainder of March.

Holding advances from her role as chief investment officer (CIO) for the Fidelity Institutional Asset Management (FIAM) Equity group. She will oversee the Value & Income, Small Cap, International and FIAM investment groups and three Equity Research managing directors.

FIAM Equity will continue to report to Holding, though the firm also plans to name a new CIO from within Fidelity by the end of the first quarter.

Holding joined Fidelity in 2013 from Putnam Investments, where she served as CIO and senior portfolio manager in the global value equities division. Prior to that, she worked in fixed-income research for Putnam and headed the European and International Equity Research team in Putnam’s London office. She has also been a senior high-yield bond analyst for Kemper Financial Services.

Cohen is currently the head of Global Equity Research at Fidelity. His new role includes oversight of the Growth, Large-Cap Core, Capital Appreciation and Mid-Cap investment groups, five Equity Research managing directors and the head of Equity Trading. He previously managed a handful of Fidelity funds, including Export and Multinational, Advisor Large Cap, Advisor Diversified Stock and Growth & Income, as well as several sector funds. A Fidelity lifer, he joined the firm in 1996.

Cohen has been part of Fidelity’s equity senior management team since 2013. As head of Global Equity Research, he’s managed Fidelity’s global research efforts and been CIO of Fidelity’s Select Portfolios.

The new co-heads place two people in a role previously occupied by a single person. The fund titan says that as the Equity Division has expanded significantly in recent years, shared responsibility creates additional oversight and allows leadership talent to flourish.

We believe this is just another changing of the guard at Fidelity, and see nothing out of the ordinary in the moves. In that light, Hogan’s succession should not be a cause for concern for Fidelity fund shareholders.

About Adviser Investments

Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To.

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