Bull Markets, Estate Planning and Vanguard Fund Changes August 31, 2018 Adviser Fund Update Print Vanguard Doubling Its Global BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. Fund Offerings Soon there will be not one, but two different ways for investors to globetrot the world of bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. at Vanguard. Earlier this month, Vanguard announced plans to open an actively managed global bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. fund in November. This follows the May reveal that the firm intended to open an index fund covering the global bond market this month—Vanguard Total World Bond ETF, which has since been delayed (more on this below). The new fund, Vanguard Global Credit Bond, will be available in the firm’s Admiral and Investor share classes, which are slated to charge 0.25% and 0.35% in expenses, respectively. Its portfolio will be invested in both corporate and non-corporate bonds (but not government-guaranteed ones) worldwide. Managers Samuel Martinez and Daniel Shaykevich will hedge foreign currencies back into the dollar (a means of reducing the riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. of exchange-rate fluctuations on the portfolio) and will have the ability to put up to 10% of assets into high-yield or “junk” bonds (those rated below “investment-grade”). Martinez and Shaykevich are the same duo that was added to Vanguard’s three actively managed investment-grade bond funds earlier this year following former manager Gregory Nassour’s surprise resignation. Vanguard Global Credit Bond will presumably join Total World Bond ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index. in Vanguard’s lineup when it debuts. We say “presumably” because the fund giant has already pushed back the opening of the ETF until at least the end of August, which is far from the first time Vanguard has delayed a bond fund’s arrival. As we wrote in June, Total World Bond ETF will be a fund-of-funds invested in Vanguard’s Total Bond Market ETF and Total International Bond ETF. It is expected to charge 9 basis points, or 0.09%, in operating expenses, giving it a leg up on Global Credit Bond on that front. That said, the new actively managed fund will be very competitive on costs with similar products from other fund providers, true to Vanguard style. In a way, Vanguard is setting up a horse race between active and passive management, a theme repeated throughout its stable of funds, including in the foreign bond arena. Shaykevich also manages the $98 million Emerging Markets Bond fund, still relatively unknown and unloved by Vanguard investors despite having more than doubled the return of the firm’s $1.3 billion Emerging Markets Government Bond Index fund. It has outperformed the index fund in every month but two since its inception in early 2016. It remains to be seen if Shaykevich and Martinez can repeat that feat on the new global fund. We’ll also be interested to discover how many investors choose to circumnavigate the bond universe in each of Vanguard’s new offerings. Longtime Vanguard Manager Announces Retirement Another Wellington Management fund manager is hitting the dusty trail as the venerable firm’s slow but steady brain-drain continues. Earlier in August, veteran bond manager John Keogh announced his plans to retire on June 30, 2019. Keogh manages the fixed-income portions of Vanguard’s vaunted Wellesley Income and Wellington funds and their newer, globe-spanning Global Wellesley Income and Global Wellington siblings. The four funds have a combined $159.9 billion in total assets. He will continue to co-manage the portfolios until his retirement date. Michael Stack and Loren Moran—co-managers on these funds since January 2017—will stay on to oversee the fixed-income portions of each fund. Managers on the equityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. side of the funds will not change. The nearly year-long lead time gives Vanguard plenty of advance notice. And, no doubt, they knew it before we did. But the question remains just how quickly Wellington Management (and, by extension, Vanguard) is losing its portfolio managers. At 61, Keogh is one of the oldest Wellington managers running a Vanguard fund—and 61 is hardly long in the tooth. Lucius Hill (former manager of Long-Term Investment-Grade) and Karl Bandtel (Energy) both retired from Wellington (and fund management) in June 2016, and Jim Mordy (a Windsor fund manager) announced in February that he would retire at the end of 2018. That said, Keogh’s team remains in place, and Wellington’s bench is very deep. His departure is nothing for shareholders to be especially concerned about, and we doubt that investors will notice a significant difference in the funds’ portfolios or performance following Keogh’s farewell. The bigger issue in our mind centers on other Wellington portfolio managers of Keogh’s generation who may want to hang it up in the not-so-distant future. In addition to Michael Stack, who’s 59 years old, Vanguard also relies on the services of Ed Bousa, 59 (Wellington), Michael Reckmeyer, 59 (Wellesley Income, EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Income), Paul Marrkand, 59, (Morgan Growth) and Ken Abrams, 58 (Explorer), any of whom could be next in line to start eyeing the door. We’ll be watching for future retirement announcements and will be sure to keep you informed. A potential wave of retirements certainly has to give Vanguard pause as Father Time starts to catch up to some of the most experienced managers running some of its biggest funds. We would not be at all surprised if succession planning has been made an even higher priority on these funds or others with aging managers. Manager retirements are just one of the reasons why the research and investment teams at Adviser Investments spend so much time talking to fund managers and reviewing portfolios. We seek not only the best investments for our clients, but also high-confidence backups for every fund we buy. That way, we are prepared if a fund unexpectedly closes, its management stumbles or a portfolio manager leaves. It’s an effort that never stops—but it’s just part of the service we offer every one of our clients. New Podcasts: Measuring Bull Markets and Readying for Retirement We’re excited to announce that the most recent episodes in our series of The Adviser You Can Talk To podcasts have gone live. You can listen to them on our dedicated website as well as on other popular podcast sites (Apple Podcasts and Google Play among them). Bull MarketA period during which stock prices rise significantly from recent lows for weeks, months or years. Record, Bull. Chairman Dan Wiener and Director of Research Jeff DeMaso go over the statistics behind this bull marketA period during which stock prices rise significantly from recent lows for weeks, months or years. and the last, but they also discuss why diversificationA strategy for managing investment risk by investing in a mixture of different investments. Since different asset classes face different risks, even if one type of asset declines in value, others may not. is not dead even after a long run of outperformance by U.S. stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. over foreign peers. Are You Ready for Retirement? Hosted by Vice President Liz Kesselman and featuring two members of our financial planning team, Andrew Busa and Victor Colella, this podcast covers four simple questions our planners believe all investors need to focus on as they prepare for a successful retirement. We encourage you to tune in to both of these informative conversations today! Aretha Franklin and the Importance of Estate Planning The tragic passing of soul music legend Aretha Franklin was made even more so for her family when it was discovered that she died without a will. The lack of a will makes a difficult time even harder on family members following the loss of a loved one, and for a wealthy individual with a complicated estate it can mean months or years of legal red tape for their heirs. If you have any questions about what you should do to prepare your estate (or would like information on how to settle an estate), please download our estate planning checklist. For more on our wealth management or financial planning services, please give us a call at (800) 492-6868 or send us an email at email@example.com and one of our team can set up a time to talk. 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, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., 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. Our minimum account size is $350,000. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. 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