Vanguard Veteran Stepping Down

Vanguard Veteran Stepping Down

After 25 years at Vanguard, Chief Investment Officer George “Gus” Sauter, 58, announced he will be retiring at the end of this year. Sauter was the driving force behind Vanguard’s decision to launch an ETFA 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. share class for many of its existing mutual funds. His departure represents a changing of the guard, but investors in Vanguard’s funds likely won’t notice any difference in management or performance in their investments.

Sauter’s biggest contribution to the inner workings at Vanguard was not his investment acumen per se, but rather his management of the indexing group, which does an incredible job of tracking its various benchmarks with near pinpoint accuracy. As head of equityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. index management, Sauter helped develop new trading programs and strategies that minimized trading costs and enhanced benchmark tracking precision. This enabled Vanguard to offer index funds with lower costs than its competitors could offer.

When Sauter joined the firm two weeks prior to the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market crash of 1987, Vanguard offered just two index funds (500 Index and Total 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. Market Index), with total assets of $1.2 billion. Throughout the early and mid 1990s, Vanguard rolled out several new index funds. But it was Sauter who, in 1998, championed the idea of launching a line of 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. that would operate as a separate share class of existing Vanguard index funds, rather than as standalone funds.

The firm originally attempted to roll out ETF share classes of 500 Index, Growth Index, SmallCap Index, Total StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. Market Index and Value Index in 2000. However, Standard & Poor’s filed a lawsuit to block any Vanguard ETFs based on its indexes (all but Total Stock Market Index tracked S&P indexes at that time), claiming a breach of contract. Vanguard ultimately lost the legal battle, and was forced to delay its entry into the ETF marketplace, an embarrassment for Sauter and the firm. (S&P and Vanguard have since made up, and the firm now offers a handful of ETFs tracking S&P index products.)

Despite the early speed bumps, 2001 saw the introduction of Vanguard Total Stock Market ETF (VTI). With more than $20 billion in assets, VTI today is one of the industry’s largest ETFs. In all, Vanguard now manages 64 ETFs with nearly $200 billion in assets and is the third-largest provider of ETFs, behind iShares and State Street Global Advisors.

In 2003, Sauter was named Vanguard’s first chief investment officer (CIO), responsible for all in-house stock and fixed-income management. However, as Vanguard spokesman John Woerth told Bloomberg, the CIO job at Vanguard is not like the CIO job at other firms: “He doesn’t make market calls or predict the direction of interest rates.”

Sauter was also responsible for developing and managing Vanguard’s active quantitative equity strategies, which include Strategic EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. and Strategic SmallCap Equity. His track record here was less noteworthy. Sauter rarely, if ever, put his investment predictions on the line and his actively-managed creations were not barnburners on the performance front.

Tim Buckley, managing director, will take over as chief investment officer after Sauter departs. His task will be to keep the gears running smoothly while managing his managers. Buckley, 43, has been a member of Vanguard’s senior staff since 2001 and has directed Vanguard’s Retail Investor Group since 2006. He joined Vanguard in 1991 as assistant to then Chairman John C. Bogle. Buckley is also a member of Vanguard’s Portfolio Review Group, which has oversight responsibilities for in-house investment management functions and 30 external investment advisory firms employed by Vanguard in the United States and abroad. He earned an A.B. in economics from Harvard in 1991, and an M.B.A. from Harvard Business School in 1996.

As we mentioned above, we don’t think there’s any reason for Vanguard investors to be concerned by Sauter’s retirement. While he is a skilled manager, his departure should have no impact on the performance of Vanguard’s funds or ETFs.

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.