Surprise Resignation at Vanguard
Last week, Gregory Nassour resigned from Vanguard after more than 25 years of service.
Nassour managed the $62.6 billion Short-Term Investment-Grade and the $29.4 billion Vanguard Intermediate-Term Investment-Grade funds. He’d overseen each fund since May 2008.
Short-Term Investment-Grade grew into the fourth-largest actively managed bond fund in the country under Nassour’s watch. It trails only the $111.9 billion PIMCO Income, $78.3 billion Metropolitan West Total Return Bond and $72.0 billion PIMCO Total Return funds, according to Morningstar.
Samuel Martinez and Daniel Shaykevich replaced Nassour in each of his fund management roles. Martinez shared oversight of Ultra-Short-Term Bond with Nassour beginning in 2017, and has been with Vanguard since 2007, overseeing portfolios since 2014. Shaykevich joined Vanguard in 2013 and also manages the firm’s Emerging Markets Bond Fund.
Nassour acted as co-head of investment-grade credit at Vanguard. All told, his responsibility included more than $135 billion in total assets. His fellow head of investment-grade credit, Stephen Kozeracki, assumed sole leadership of the division.
The chart below shows Nassour’s significant footprint on Vanguard’s fixed-income offerings prior to his resignation. The Malvern fund giant has been characteristically tight-lipped about the departure. Was his resignation long-planned or unexpected? It’s unclear. A Vanguard spokesperson avoided specifics while affirming the firm’s deep bench of experienced managers.
Nassour’s are big shoes to fill, and Martinez and Shaykevich are Vanguard vets. Will they bet on themselves?
As of March 31, 2018, Martinez had not invested in the funds he now co-manages. Shaykevich owns up to $10,000 of Long-Term Investment-Grade and $10,001 to $50,000 of Short-Term Investment-Grade. Of course, these ownership stakes reflect investments before they assumed responsibility for the funds.
We like seeing managers put some skin in the game. That’s not just something we look for when analyzing fund managers. It’s also how we operate. Adviser Investments employees (and our families) invest in the same funds as our clients in our 401(k) plan and personal portfolios. We hope to see Martinez do the same.
We believe that surprise manager changes like this are a disservice to investors—especially if the fund company provides no real explanation nor any advance notice.
That said, there’s little reason for shareholders in any of the affected funds to be concerned.
Vanguard runs a very tight ship with its bond funds. The objectives are fairly rigid, the managers invest conservatively and the goal is to be competitive while allowing the savings from the firm’s rock-bottom expenses accrue to shareholders’ benefit over time. Vanguard has successfully delivered on these factors for a long time. We don’t think investors will notice a difference at any of these funds under the new management.
Fidelity Expands Factor ETF Lineup
We covered Fidelity’s launch of two international factor exchange-traded funds (ETFs) back in January. The fund company now filed for two new fixed-income factor ETFs at the end of March. The filing continues the recent trend of factor ETFs’ growing popularity (and marketability).
Factor investing is the current buzzword in the industry. You might know it as “smart beta” or “enhanced indexing.” These terms function as semantic jujitsu to recast these products for marketing purposes: They’re really just actively managed funds by another name.
(See our February 23, 2018, issue for a refresher on how factor ETFs work and how their active component functions.)
What are the new proposed fixed-income factor funds? Fidelity Low Duration Bond Factor ETF seeks to maintain an average duration of one year or less. The objective is to take interest-rate risk and credit risk into account while seeking optimal risk/return potential relative to U.S. investment-grade floating-rate-note indexes.
High Yield Factor ETF aims to produce a high level of income by investing in bonds rated below investment-grade, also known as “junk bonds.” It will use the Bank of America ML BB-B U.S. High Yield Constrained Index of such bonds as an investment universe to screen funds for the portfolio.
We’ll continue watching Fidelity’s push into the factor ETF space. The firm keeps looking to leverage its (deservedly) strong reputation for active management expertise with growing investor demand for ETFs and the increasing appeal of “factor-based” investing.
Vanguard is already moving quickly into the market. Fidelity’s latest filing shows that it has no intention of being left behind.
Last week, Fidelity decided that several of its funds will conduct 10-for-1 share splits in the coming months. It’s an operational decision, not an investment one, and as we’ll see, the value of shares will not change.
Some funds will split after the market closes on May 11. Another group will conduct splits after the close on June 8.
Once splits occur, the NAVs (net asset values—the price of one share) of the funds will align more closely with those of its competitors. The lower share price also makes it more affordable people who prefer to own full shares instead of fractional ones.
How does a share split work, anyway?
Take a 10-for-1 split. Imagine a fund has 1 million shares available that cost $100 per share. Following the split, there are now 10 million shares on the market that cost $10 per share.
So if you own 100 shares prior to the split that are worth $10,000, you’ll then own 1,000 post-split-shares worth the same $10,000.
As we said, there’s really no impact on shareholders, and no tax implications in the conversion. If you own one of these funds, consider this an early explanation of why your statement is showing a jump in the number of shares you own.