It’s been a busy couple of months for Vanguard, from the announcement of 20 new 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. and index funds tracking a slew of market benchmarks, to the elimination of commissions on all ETFs for brokerage clients, to a manager addition to International Explorer, to Convertible Securities reopening. In the last week, Vanguard has made two more moves to add to that list, which you can read about below.
AXA Rosenberg Axed
On August 12, Vanguard announced that it was firing AXA Rosenberg from the three funds the firm co-managed: Explorer, Market Neutral 50% and U.S. Value 70%. The approximately 12% of assets that AXA oversaw at Explorer will be divvied up amongst the fund’s remaining six advisory teams, while Vanguard’s in-house Quantitative EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Group will take over the 50% and 70% assets (as of year-end 2009) AXA ran at Market Neutral and U.S. Value, respectively. AXA’s departure will also have a trickle-down effect on several of Vanguard’s funds of funds that included Explorer, Market Neutral or U.S. Value in their portfolios, like STAR, the three Managed Payout funds and Diversified Equity.
Why the change? AXA has had a black mark in the industry dating back to June 2009, when the quantitative firm noticed a glitch in their computer systems (which it relies upon to make trading decisions) originating in April 2007. While AXA claims the error didn’t negatively affect its clients (Vanguard backs up this claim for the portions of three funds AXA ran), the problems arose when the firm failed to report the malfunction to the institutions and investors who’d hired AXA to run their money. AXA said the error was fixed by November 2009, but the misstep and attempted cover-up have led to numerous firms firing AXA since. Vanguard is just the latest to cut ties.
We’ve made it clear in the past that we feel the multi-manager approach is often not in investors’ best interests, so in that respect, it’s good to see Vanguard jettisoning an untrustworthy firm from a number of funds. That said, the small-cap Explorer is still burdened with six other management teams, and Vanguard’s Quantitative Equity Group doesn’t have a great track record with its value investments, so it’s quite possible that the firm will look to replace AXA on U.S. Value and Market Neutral at some point. Score the firing as a good public relations move, but it should not be an incentive to buy into any of the affected funds.
On August 18, Vanguard opened the twelfth of their Target Retirement lifecycle funds, aiming for investors retiring around the year 2055. The firm says that the fund best fits investors between the ages of 18 and 22 years (who can afford the fund’s $3,000 required minimum). You can see the fund’s projected initial allocation in the table below-it’s nearly identical to the four Target Retirement funds with their “due” dates the furthest off in the future (2050, 2045, 2040 and 2035).
As we mentioned in the June 11 Adviser Fund Update, lifecycle funds, such as Vanguard’s Target Retirement series, are usually a poor substitute for a well-diversified portfolio of the best actively managed mutual funds. Target Retirement 2055 bypasses Vanguard’s best funds, and its oversimplified approach to investing for retirement is not one we can recommend.
About Adviser Investments
Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFs, fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the fifth consecutive year, Adviser Investments was named to Barron’s list of the top 100 independent financial advisers nationwide and its list of the top advisory firms in Massachusetts in 2017. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015 and 2016.
For more information, please visit www.adviserinvestments.com or call 800-492-6868.
Disclaimer: This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, 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. factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
The Barron’s rankings consider factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. This award does not consider client experience and is not indicative of future performance.
Editors at the Financial Times bestowed “elite” status on 300 firms in the U.S., as determined by assets under management, asset growth, longevity, compliance record, industry certifications and online accessibility.
© 2018 Adviser Investments, LLC. All Rights Reserved.