Home chevron_right Latest Commentary chevron_right Adviser Fund Update Vanguard Adds ‘Pandemic Risk’ to Fund Prospectuses May 13, 2020 Table of Contents Vanguard Shuffles International Managers Vanguard Adds ‘Pandemic Risk’ to Fund Prospectuses Podcast: Earnings Reports From Lockdown—Innovation, Adaptation and Taking Shelter CARES Act Developments and Resources Today’s Market Takeaways Vanguard Shuffles International Managers Our readers know that we specialize in active managers at Vanguard, a fund family more often celebrated for its low-cost index funds than its actively managed funds. One reason is that Vanguard relies heavily on “subadvisers,” outside money managers hired for their expertise in certain investment styles or market niches. So you’d be excused if you hadn’t heard some recent manager-related news. To start, Baillie Gifford—a 110-year-old asset manager based in Edinburgh, Scotland that picks stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. for a number of Vanguard’s mutual funds—said last week that Charles Plowden will be retiring in April 2021. Plowden, one of three Baillie Gifford managers overseeing a portion of Vanguard’s Global EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. fund, is stepping down after 38 years with the firm. Plowden will be succeeded by Helen Xiong, who was recently promoted to partner. She has been a part of Baillie Gifford’s “Global Alpha” team, which manages a portion of Global Equity, since 2012. Xiong will join co-managers Malcolm MacColl and Spencer Adair on the fund starting May 1, 2021. Given the year-long lead time before Plowden sets sail and Xiong’s tenure at the firm, we don’t expect his departure to have any noticeable impact on the fund’s management. Elsewhere in the Vanguard universe, the fund giant recently updated the Emerging Markets Select StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. fund’s prospectus to reflect a few manager changes. As announced last October, Richard Sneller has retired from Baillie Gifford and is no longer a manager at the fund. His replacement, Ewen Markson-Brown, has joined Andrew Stobart and Mike Gush overseeing Baillie Gifford’s sleeve of Emerging Markets Select Stock. Sneller’s not the only one who’s left the international fund. Timothy Jensen has retired from Oaktree Capital, another of the fund’s subadvisers, leaving Frank Carroll as the sole manager from Oaktree running a portion of assets. Pzena Investment Management, a third subadviser on Emerging Markets Select Stock, has added a fourth co-manager to its team, Rakesh Bordia. As the above makes clear, there are a lot of cooks in Emerging Markets Select Stock’s kitchen. The fund is saddled with four subadvisers: Baillie Gifford, Oaktree, Pzena and Wellington Management. That adds up to nine individual named managers across the four teams. One of the reasons Vanguard uses multiple managers on a single fund is to reduce the impact of a manager departure. While the practice does offer some insurance in that regard, we believe, with few exceptions, that the multimanager approach more often dilutes the ability of a single talented manager to impact performance. So, yes, managers coming and going from a crowd might not be a big deal, but in seeking to reduce one 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., Vanguard has created an entirely different problem: Manager bloat. Ultimately, the addition and retirements on Emerging Markets Select Stock are unlikely to have a noticeable impact on the fund’s portfolio or performance one way or another, just as Vanguard intended. Vanguard Adds ‘Pandemic Risk’ to Prospectuses 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. is synonymous with investing; it’s essentially the price of admission. And in every mutual fund’s prospectus, you’ll find a compendium of potential risksThe 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. that may befall investors. In a sign of the times, Vanguard has added a new risk to its prospectuses: Pandemics. In Securities and Exchange Commission (SEC) filings on April 17, Vanguard added “pandemics” as a factor that could create market disruptions to its funds’ statements of additional information. The “investment strategies, risks and nonfundamental policies” section of the firm’s fund prospectuses has been amended to read: “Significant market disruptions, such as those caused by pandemics, natural or environmental disasters, war, acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Market disruptions may exacerbate political, social, and economic risks discussed above and in a fund’s prospectus.” Risk is synonymous with investing; it’s essentially the price of admission. In a sign of the times, Vanguard has added a new risk to its prospectuses: Pandemics. We’re not surprised to see fund families such as Vanguard update their prospectuses. The modern investment industry has never experienced a worldwide pandemic shutting down significant portions of the economy or the ensuing havoc wreaked on the markets. As a result, they’re updating definitions of significant risks to cover their liabilityLiabilities are calculated by adding up your existing debts (mortgage, car loans, student loans, credit cards, etc.). bases. Vanguard was one of the later asset managers to warn investors of pandemic risk. As of late March, more than 40 institutions, including Baron Capital Management and Neuberger Berman Group, had already added pandemic risk to their SEC filings. Podcast: Earnings Reports From Lockdown—Innovation, Adaptation and Taking Shelter Earnings and interest rates drive stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. prices over time. Given the pandemic and stay-at-home advisories, first-quarter earnings season has held extra importance for investors wanting to know how companies fared as the economy ground to a halt and how they’re planning to battle back in the months and quarters ahead. In this episode of The Adviser You Can Talk To Podcast, Director of Research Jeff DeMaso speaks to Vice President and Portfolio Manager Charlie Toole and Equity Research Analyst Kate Austin, who run our DividendA cash payment to investors who own stock in the company. Income Strategy. Our seasoned investment strategists discuss how they take in what they’re hearing from individual companies for a clearer sense of the overall economy and where we’re headed. Topics include: Which industries are being hit especially hard? How do you predict future earnings with this landscape? Where we see opportunities for long-term investors Companies innovating to succeed now and when recovery begins And amid the challenges, we’re also seeing silver linings. For our informative insights on how companies are adapting to a pandemic, click here to listen now! The CARES Act Developments and Resources Just after Congress passed the massive $2-trillion CARES Act, we offered our initial interpretations of the 880-page legislation. The new laws, containing many provisions to help taxpayers and investors, touched nearly every aspect of American life, from unemployed workers to retirees, from small business owners to freelancers. In recent weeks, we’ve been unpacking additional details to help our clients get everything they deserve. Check out some of our recent resources below, and don’t hesitate to give us a call if you have any questions about how they may apply to you. RMDs and the CARES Act. New rules and regulations allow retirees to keep their money invested tax-free in 2020. The CARES Act’s Unemployment Benefits. Make sure you (or a loved one) get everything you’re entitled to. Relief Payments to Taxpayers. Did you get yours yet? Determine your eligibility for a one-time payment direct from Uncle Sam. Assistance for Small Businesses and Their Employees. How can small business owners and contractors file for relief from the latest round of funding? Penalty-Free 401(k) Withdrawals. While we’d never suggest you tap into your retirement account unless absolutely necessary, people facing understandable hardships can now take retirement-account withdrawals penalty-free. Adviser Investments’ Market Takeaways Calm and clarity have been sorely lacking when it comes to market news recently—that’s why we’ve begun providing Today’s Market Takeaways, short videos in which a member of our investment team analyzes what the market’s telling us. We posted two new Market Takeaways videos over the last week, featuring Equity Research Analyst Kate Austin on the virus’ impact on earnings and technological shifts and Vice President Steve Johnson with some sound Mother’s Day-themed advice for investors. 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