In This Issue:
Vanguard Plans to Shutter U.S. Value Fund
Last week, Vanguard celebrated the recent 20th birthday of one of its long-suffering funds by revealing plans to put it out of its misery.
The fund behemoth announced that it has closed its $1.1 billion U.S. Value fund to new investors as it takes steps to merge the actively managed fund into its $77.2 billion Value Index fund by early next year.
Vanguard will transfer about 45% of U.S. Value’s holdings into Value Index and sell the rest off as scrap, reinvesting the proceeds into Value Index by February 5, 2021.
How’s Vanguard spinning this move? It notes that U.S. Value shareholders will be moving to a comparable fund “with better historical long-term investment performance.” U.S. Value’s mediocre track record is not news to us, and the move seems sensible.
Vanguard goes on to say that shareholders of both funds “may benefit from additional economies of scale.” Well, that clearly applies to U.S. Value shareholders, since the management fees they pay will drop from 0.22% (or 22 basis points) to 0.05% (five basis points).
But we’re not seeing how Value Index’s shareholders will really benefit—they likely won’t notice a thing. Perhaps that’s why Vanguard hedges with “may” benefit from additional economies of scale.
What’s even more suspect is Vanguard’s claim that it is firmly in active management’s corner, telling existing U.S. Value shareholders that, “Vanguard continues to believe in the potential for outperformance in the value category, and offers additional products with strong track records of outperformance which may be good solutions for investors who seek an active mandate.”
Huh? Four months ago, they bailed on the actively managed Capital Value fund and merged it into the Windsor fund.
We’re hardly critical of every actively managed fund from Vanguard—quite the opposite. The firm’s reputation for low-cost index funds overshadows the numerous skilled active managers in the Vanguard fold.
But when you talk active value funds, there’s really Windsor, Windsor II and Equity Income in the large-cap category, and Explorer Value in the smaller-cap space. (We’ll be gracious and take a pass on International Value, which has underperformed for what seems like forever.)
As a refresher, value investing (which emphasizes buying stocks investors believe are selling at a discount) has struggled to keep pace with growth investing (targeting companies that exhibit above-average growth compared to their industry or the market) since the Great Recession.
We don’t think any of these active funds have been all that impressive, no matter how Vanguard tries to spin it.
One possibility is that Vanguard is getting rid of the competition for its shiny new toy: the U.S. Value Factor ETF, which may have collected more assets since its inception than any of its factor siblings, but has also put up the worst performance record so far. (In fact, U.S. Value has outpaced its ETF counterpart since Value Factor’s early 2018 launch.)
Vanguard U.S. Value: An Early Obit
Where did things go wrong for U.S. Value? Here’s a brief recap: In March 2000, Vanguard announced plans for the multi-cap actively managed fund, which launched in June of that year. Seven years later, the fund went through a wrenching revision that put it on the path to mediocrity.
Computer-driven from the get-go, U.S. Value’s original manager was the well-known Grantham, Mayo, Van Otterloo & Co. (GMO), steered by value investing legend Jeremy Grantham. The fund’s managers operated with GMO’s historically strong intrinsic value methodology, buying large-, mid- and small-cap companies based on metrics like cash flow, book value, profit stability and franchise value.
Vanguard touted the “discipline” at the heart of the fund’s strategy in its marketing material. However, the fund family itself didn’t stick with that discipline, adding a second manager to the fund in 2007, AXA Rosenberg, which remained a portfolio manager for about three years before getting canned for failing to inform clients that its computers had been malfunctioning.
In the meantime, GMO had been shown the door and replaced with Vanguard’s in-house quantitative group. Upon AXA’s ouster, U.S. Value retained the Vanguard quants as its sole manager.
None of the manager changes did anything to improve U.S. Value’s performance against the straight-ahead value benchmark, Value Index. And since Vanguard took over sole proprietorship of the portfolio, relative performance has cratered.
With its demise on the horizon, it’s hardly a happy 20th birthday for U.S. Value. But with a lower-cost alternative putting up bigger numbers, the active fund’s days have been numbered for some time.
# # #
Adviser Investments’ Recent Local and Industry Accolades
This month, Adviser Investments was named among Massachusetts’ “Largest Independent Investment Advisers” by Boston Business Journal. We were also selected as a “Top 100 Wealth Manager” by RIA Channel, ranking #18 on the nationwide list.
Boston Business Journal recognized the firm among Massachusetts’ top-25 independent investment advisers, as determined by Adviser Investments’ $5.8 billion in assets under management as of June 1, 2020. The publication updates its rankings annually, with Adviser Investments retaining its #13 position from 2019 and 2018—up from #16 in 2017 and #20 in 2016.
RIA Channel picked the firm among the nation’s top wealth managers based on both size and growth in assets as of June 30, 2020, as well as a proprietary set of criteria and data.
We’re especially grateful to be acknowledged this year given the obstacles many other businesses have faced in transitioning employees to remote work. We’re proud to have maintained, without a hitch, our signature standard of personalized client service.
On behalf of all of our valued employees, we thank you for your support and readership.
# # #
Podcast: The Portfolio Impact of Politics and Pandemic
How is the “reopening” of the economy going? How has the spread of COVID-19 impacted those efforts? And what will the results of the 2020 election mean for investors?
These three questions sum up some of the bigger worries for investors today. And while the reopening and the upcoming election may seem like disparate topics, they both fall under the old maxim: You can always find a good reason not to invest. But even during nerve-wracking periods, we’ve found that spending time in the market has been an enduring means of growing your wealth over time.
Listen in as Director of Research Jeff DeMaso and Research Analyst Liz Laprade discuss some of their latest research on economic shutdowns and reopenings, what the medical data is telling us, and the historical record of market performance under both Democratic and Republican presidents.
In this insightful conversation, Jeff and Liz cover:
- How other countries’ reopening efforts have gone and how they’ve attempted to combat the virus
- The dramatic geographical disparities in states’ approaches to reopening and COVID-19’s spread
- The data behind the disconnect between the current recession and stocks’ strong rebound
- How markets have performed leading up to and following presidential elections
- … and much more
Click here to listen now!
# # #
Adviser Investments’ Market Takeaways
Calm and clarity have been sorely lacking when it comes to market news recently—that’s why we’re providing Today’s Market Takeaways, short videos in which a member of our investment team analyzes what the market’s telling us.
Recently, Equity Research Analyst Kate Austin provided insight on Apple’s four-for-one stock split, and Vice President Steve Johnson discussed the divide between worsening unemployment and strong tech earnings.
# # #
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 seventh 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 2019. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015, 2016, 2018 and 2019.
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 opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. 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.
You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
RIA Channel® Top 100 Wealth Managers ranks wealth managers “based on a proprietary set of criteria and data. The ranking is based on both size and growth in assets as of June 30, 2020, as reported to the SEC. RIA Database (RIADatabase.com) was used for regulatory data, organic research, and advisor surveys.” (See https://www.riachannel.com/2020-top-100-wealth-manager-list-methodology/.) Adviser Investments did not verify any data—nor were we asked to—prior to ranking or publication. Regulatory Assets Under Management (“RAUM”) displayed on RIA Channel’s website is calculated by RIA Channel, not Adviser Investments. We did not independently calculate our RAUM as of June 30, 2020, nor do we know RIA Channel’s RAUM calculation methodology. RIA Channel has not published information on how many firms were considered for ranking, nor did it publish criteria used for inclusion for consideration on this ranking. Adviser Investments did not submit any information to RIA Channel regarding in this ranking, request to be considered for the ranking or pay any fee in connection with this recognition. For more information and a complete list of recipients and rankings, visit https://www.riachannel.com/top-100-wealth-manager-list-2020/.
The Boston Business Journal’s “Largest Investment Advisers in Massachusetts” ranking is based on each participating firms’ assets under management as of June 1, 2020. Only firms that choose to participate are ranked and included on the top 25 list. The award sponsor has not disclosed how many firms were survey or considered for this recognition, nor the percentage of total participants that ultimately received recognition. Award is not indicative of future investment performance nor represents client experience. For more information and a complete list of recipients, visit https://www.bizjournals.com/boston/subscriber-only/2020/07/16/largest-independent-investment-advisers.html.
The Barron’s Top 100 Independent Wealth Advisors rankings consider factors such as assets under management, revenue produced for the firm, and quality of practice as determined by Barron’s editors. 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/articles/are-ria-firms-growing-too-fast-the-story-behind-the-trend-51568420132. Years Received: 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 Advisers) 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 recognition in 2020; with about 1,200 firms receiving recognition. For more information and a complete list of recipients visit https://www.barrons.com/report/top-financial-advisors/1000/2020?mod=article_inline.
Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014
The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by the Financial Times and Ignites Research. According to the Financial Times, in 2019, approximately 2000 firms were invited to be considered for its list; 740 responded with 300 being named to this list. The listing reflects each practice’s performance in six primary areas: Assets under management (70-75% of a firm’s score), asset growth (15% of a firm’s score), years in existence, compliance record, credentials and online accessibility. For more information and a complete list of recipients visit https://www.ft.com/content/44d2b2b2-6cef-11e9-9ff9-8c855179f1c4. Years Received: 2019, 2018, 2016, 2015 & 2014.
Awards referenced above do not consider client experience and are not indicative of such. Nor are awards indicative of future performance. Unless otherwise noted, Adviser Investments does not pay a fee to participate in any of these awards. Additionally, awards typically only consider and recognize participants that choose to participate; and are often based on information supplied by the participants—such information should not be assumed to be verified by the sponsor of the award.
The Adviser You Can Talk To Podcast is a trademark of Adviser Investments, LLC. Registration pending.
© 2020 Adviser Investments, LLC. All Rights Reserved.