In This Issue:
Vanguard Launches New Active Management Options
Vanguard plans to launch three new actively managed funds later this year: Advice Select Dividend Growth, Advice Select International Growth and Advice Select Global Value.
As Adviser Investments clients know, we’ve long believed that, despite its well-founded reputation for low-cost index funds, Vanguard has some standouts among its bevy of actively managed funds that can easily go head-to-head with fund shops that are better known for stock-picking.
Access to these new Vanguard offerings will be limited: The funds are only available to clients of Vanguard’s hybrid-robo Personal Advisor Services (PAS) program.
Until now, PAS has been index-fund heavy, leaning on Vanguard’s “total market” index funds to build simple, plain-vanilla portfolios. This latest move finds Vanguard acknowledging not only that active management matters, but that concentrated active portfolios can pack a punch that helps add value to your portfolio.
Advice Select Dividend Growth, managed by Wellington’s Don Kilbride, is an iteration of his existing Dividend Growth fund, a tight portfolio of around 40 stocks. You may remember that Vanguard temporarily closed Dividend Growth to new investors in 2016, with around $30 billion in assets under management. It reopened in August 2019. Today, the fund is north of $50 billion and open to anyone with $3,000 to invest.
For the Advice Select version, Kilbride will offer an even more concentrated portfolio—and it will cost nearly double, with an expense ratio of 0.45% versus 0.26% for the Dividend Growth fund he’s managed with considerable success for the past decade and a half. Pile that atop the annual fee of 0.30% for PAS and it starts to add up.
We’ve watched Kilbride carefully throughout his career and we think this horse race should be entertaining: A talented manager’s concentrated portfolio up against his own more diversified array of holdings. Is it better to have a concentrated blend of someone’s best ideas or broad exposure? Will the increased capacity hamper Kilbride’s ability to maneuver? We’ll be keeping close watch.
The Scotland-based outfit Baillie Gifford, the driving force behind two-thirds of Vanguard’s International Growth fund and a sleeve of International Explorer, will helm Advice Select International Growth. Rather than giving Baillie Gifford complete control over International Growth, Vanguard is instead giving the growth stock-pickers a new, exclusive fund to manage. As with Advice Select Dividend Growth, Advice Select International Growth will be more highly concentrated and more expensive than its existing sibling.
We don’t rate David Palmer—the manager of Advice Select Global Value who also manages a long-term value sleeve of Windsor—particularly highly. That said, this is the only fund launch of the three that really makes sense given that there isn’t already a similar pony in Vanguard’s stable.
It’s refreshing to see Vanguard putting more stock in its under-publicized active management talent. But we’re a bit stymied as to why it wouldn’t use the existing Dividend Growth and International Growth funds, as they are with Capital Opportunity and International Core Stock. Why launch concentrated versions of the first two funds and then keep them restricted to a limited pool of investors? And if those distilled versions are truly better, why not make them available to everyone (even if they cost more)?
Climate Change and Your Portfolio
We hear it often from investors: How should I factor climate change into my investment strategy? How does Adviser Investments manage this portfolio risk?
Research Analyst Liz Laprade had this to say:
Climate change is a consideration for many investment managers, including us. But after evaluating the findings in the United Nations report released last month, it’s safe to say that this weighty issue is about to become even more of a factor when assessing and selecting long-term stocks. The report, released by the Intergovernmental Panel on Climate Change, marshals research conducted by thousands of scientists from all over the world. It reveals not only that irreparable damage has already been inflicted on our planet by humans, but also what we can do to try to stem the tide for future generations.
On the heels of that bittersweet message, the Biden administration is trying to pass legislation that would put more dollars and support behind the push for renewable energy and cutting carbon emissions in half by 2030.
If the legislation succeeds, the obvious beneficiaries are renewable energy companies. On the flip side are a small number of companies responsible for most of the fossil fuel emissions around the world, including big oil, energy and coal companies. They would come under increased pressure and could see their costs increase to meet lower emission mandates.
Investors need to be aware that climate risks are likely to compound in the years ahead. As always, we invest in active managers who we believe are among the best stock-pickers in their respective areas of expertise. And a big part of the process for them is evaluating corporate leadership practices and gauging how companies are preparing for rising risks. As such, our managers are accustomed to considering the winners and the losers within the environmental impact pillar of ESG investing.
Simply put, companies that fail to comply with environmental mandates or don’t try to aid the world in minimizing fossil fuels will suffer and are less likely to make the cut with the fund managers we select for client portfolios.
Podcast: Expanding the Benefits of Restricted Stock
Stock compensation isn’t just for CEOs anymore. But figuring out how to get the most out of stock options and awards can be tough. We can help. In this second episode of our series on equity comp, financial planners Andrew Busa and JonPaul McBride take an even deeper dive into the ins and outs as they discuss strategies that may help you maximize the benefits of restricted stock units and awards. They explore:
- The differences between restricted stock units (RSUs) and restricted stock awards (RSAs)
- How vesting schedules can impact your tax burden
- The pros and cons of 83(b) elections as a tax strategy
- …and much more
Equity compensation comes in many varieties. Listen to part one of our series to hear more about stock options, or consult our primer on equity compensation to brush up. Whatever form it takes, you’ll want to ensure you’re making the most of the opportunity equity compensation gives you. Click here to listen today!
Adviser Investments’ Today’s Market Takeaways
There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.
In our most recent Market Takeaways, Vice President Steve Johnson pondered, “Can Chair Powell and the Fed thread the inflation needle?” while Liz Laprade discussed the economic impact of Hurricane Ida.
We hope you find these episodes engaging and accessible. If there are any topics you’d like us to address, please send an email to firstname.lastname@example.org!
Click here for more advice and insights from our investment strategists and financial planners.
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. Adviser Investments was named to Barron’s list of America’s Best Independent Advisors in 2020 and its list of the top advisory firms in Massachusetts in 2021. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015, 2016, 2018 and 2019.
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The Barron’s America’s Best Independent Advisors rankings consider factors such as assets under management, revenue produced for the firm, and quality of practice as determined by Barron’s editors. According to Barron’s, “around 4,000” advisory firms were considered for this recognition in 2020, with about 1,200 firms receiving recognition. The award sponsor has not disclosed how many firms were surveyed or considered for this recognition, nor the percentage of total participants that ultimately received recognition. For more information and a complete list of recipients visit https://www.barrons.com/advisor/report/top-financial-advisors/independent. Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014.
The Barron’s Top Advisor Rankings by State (Massachusetts) (also referred to as Barron’s Top 1,200 Financial Advisors) considers factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. According to Barron’s, “around 4,000” advisory firms were considered for this award in 2021, with about 1,200 firms receiving recognition. For more information and a complete list of recipients visit https://www.barrons.com/advisor/report/top-financial-advisors/1000. Years Received: 2021, 2020, 2019, 2018, 2017, 2016, 2015 & 2014.
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