Vanguard’s Manager Rotation

Vanguard’s Manager Rotation

At the end of February, Vanguard announced that it was making a number of leadership and manager changes in an effort to rotate talent and strengthen its team. As part of that rotation, quite a few index funds, 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. and annuitiesA financial instrument that pays the holder a guaranteed stream of payments. The annuity is funded by either a lump sum (one-time) or a series of deposits. Once funded, the sum is invested by the insurance company who sold the annuity (the accumulations phase). After a certain trigger (for example, the holder’s retirement or reaching a certain age) payments begin to be issued to the holder (annuitization phase). Annuity payments may be fixed or variable in both amount and in length (some pay out for a designated span of years, others until the holder’s death). were appointed new managers or co-managers while the EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Index, 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 and Active Equity Groups all have new heads.

Here is a brief rundown of the new leadership appointments:

• Joseph Brennan, who had been heading Vanguard’s Asia Pacific branch from Australia since 2009, has returned to the U.S. to take over the Equity Index Group, which oversees all of the firm’s domestic and international equityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. index funds and annuities. Gregory Davis, former head of the Bond Index Group, has filled Brennan’s role in the Southern hemisphere.

• Joshua Barrickman is the new head of the Bond Index Group. Barrickman has been a 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. manager with Vanguard for the last decade and will continue to manage or co-manage a handful of bond portfolios.

• John Ameriks, Ph.D., is the new chief of the Active Equity Group, which is responsible for all of the funds (and portions of funds) that Vanguard actively manages. Ameriks has been with Vanguard since 2003 and was the head of the Investment Counseling & Research Group for the last five years. Ameriks will fill part of the role vacated by Sandip Bhagat, the former head of the Equity Investment Group, who resigned at the end of 2012 after Tim Buckley took over as chief investment officer.

The table below shows the manager changes that have gone into effect as a result of the rotation. With index funds, the manager often takes secondary importance to the underlying benchmark and objective, but he or she can add an element of 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. with something called “sampling error.” For funds that track larger indexes where it is impossible or inefficient to own every component, the manager is responsible for choosing representative holdings from the index to build a portfolio that closely matches its performance. When this process is not successful, the fund’s performance can significantly diverge from the index’s. Fortunately, with Vanguard, sampling error is a very rare occurrence (most recently seen in several of the bond indexes nearly a decade ago) and it is not uncommon for the managers to lag their benchmarks’ performance (which do not have expenses or fees) by less than the fund’s operating expenses, a notable feat.

Manager Musical Chairs

It’s unlikely that investors will notice any changes in the funds with new managers or that there will be any observable differences in how Vanguard operates overall. However, the three fund group managers do have a part in new fund development, so it will be interesting to see what, if any, new investments are eventually brought to market. That said, apart from sporadic spurts of activity, Vanguard has been slow in recent years to open new funds, usually introducing just a couple per year.

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, risk 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.