Home Latest Commentary chevron_right Adviser Fund Update Vanguard Delays Two Funds February 3, 2012 Fidelity’s John Carlson Is Morningstar’s Fixed Income Manager of the Year We’re not big fans of mutual fund management or performance-based awards, especially for time periods as short or arbitrary as one calendar year. At times, these awards draw attention to funds that may have excelled over a short period, but are not ideal long-term investments for a majority of investors. Or, when the rankings companies get it right and identify a top manager, as happened this year, investors will often flood the award-winning fund with assets, making it more difficult for the manager to continue his or her winning ways. Nevertheless, we won’t begrudge Fidelity’s John Carlson for getting the recognition he has long deserved. Carlson has done an admirable job at New Markets Income, which he has managed since its inception in June 1995. He has also managed Global High Income since May 2011 and the new Total Emerging Markets, which launched in November 2011. To qualify for Morningstar’s award, a manager’s funds must not only have posted impressive returns for the year, but must also have a record of delivering outstanding performance over the long term and aligning with shareholder interests. Carlson has been doing just that during his New Markets Income tenure–let’s hope he can keep it up! Vanguard’s International 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. Layover Vanguard recently announced it was delaying the launch of the two international 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. index funds and 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. it had planned to open in January. Why the delay? Vanguard did not provide any specific reasons, but it seems that the firm is letting fear trump reason. Vanguard’s decision is at odds with its stated position that “a strategic allocation to hedged international 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. in the range of 20% to 40% of the fixed income portion of a portfolio represents a reasonable starting point to improve 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..” Without these new funds, investors interested in following that advice will continue to be forced to look to the firm’s competitors for suitable international bond investments. Could it be that concerns about the potential impact of euro-zone problems on these funds’ returns caused enough doubt in Vanguard headquarters to put off their introduction? We wouldn’t be surprised–it’s not the first time the fund giant has tabled funds on the eve of their planned opening. Around this time last year, Vanguard aborted its introduction of three municipal bond index funds and ETFs. At the time, speculation about a predicted wave of catastrophic defaults was roiling the muni market and Vanguard said it preferred to wait for the market to stabilize. With 20/20 hindsight, this turned out to be a bit of poor market-timing, as investors mostly ignored the negative predictions and municipal bonds rallied in 2011. Vanguard also missed a big opportunity to demonstrate how ignoring short-term market noise can lead to long-term investment gains, a philosophy we firmly embrace at Adviser Investments. Vanguard never caught up and, more than a year later, those muni indexes and ETFs have yet to launch. The “old” Vanguard, led by founder Jack Bogle, didn’t let a little short-term market noise get in the way of new funds it thought could benefit investors. One can envision Bogle, with his nautical allusions at the fore, screaming, “Damn the torpedoes–introduce ’em!” That’s exactly what happened in February 1994. That was when the Federal Reserve began its long campaign to raise interest rates, with their first hike of 0.25% on February 4, 1994. Vanguard didn’t flinch, and introduced its first three bond index funds just weeks later, in March 1994. Vanguard knew the time was right for bond index funds, and they went against the grain of the market and made them available to investors. While the short-term and intermediate-term funds quickly gained assets (Intermediate-Term Bond Index broke the billion-dollar barrier in 1998), it wasn’t until almost a decade later that Long-Term Bond Index grew to more than $1 billion in assets. Is the “new” Vanguard risk-averse? We believe many investors would love to get their hands on and their money into international bond index funds and municipal bond index funds run in Vanguard’s traditional, plain-vanilla, low-cost style. For now, however, we will just have to wait and see if the “old” Vanguard spirit will return. 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, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., 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.