Vanguard announces a new series of funds providing lower cost choice in active management for Australian investors
Vanguard | 09 September 2019
MELBOURNE, AUSTRALIA (10 September 2019) - Vanguard today announces its new Manager Select Series, a range of low cost actively managed funds employing world-leading active management talent.
The new funds include the Vanguard Active Global Growth Fund managed by Baillie Gifford; the Vanguard Active Emerging Markets Equity Fund managed by Wellington Management, and the Vanguard Active Global Credit Bond Fund managed by Vanguard’s Fixed Income Group.
Both equity funds are available for investment from today, with the global credit bond fund becoming available for investment in the coming weeks. The funds are wholesale offerings, available directly from Vanguard subject to investment minimums, and in time through adviser distribution platforms.
The three new funds represent Vanguard’s first offering of fundamental active management to Australian investors, specifically designed to offer more low cost choice and delivering on Vanguard’s promise of driving down the cost of investing in all the markets it serves.
Vanguard has successfully been helping clients from across the globe gain low-cost access to high quality active managers for over 40 years. This launch reaffirms Vanguard’s commitment to giving Australian investors the best chance of success by providing access to talented global managers and reducing the cost of active management in this market.
Commenting on the launch Evan Reedman, Head of Product and Marketing at Vanguard Australia said “Although we are best known for our index management, we’ve managed active funds at Vanguard since our beginnings in 1975, and active management accounts for about a quarter of Vanguard’s global assets under management.
“This launch marks an important milestone for Vanguard in Australia. Knowing that high costs represent a big headwind to outperformance, we can make a big difference for Australian investors in the future through introducing a lower cost alternative to traditional active management fee structures.
“This new series of funds follow our introduction of a range of active factor fund and ETF offerings over the past couple of years, with Vanguard broadening low cost choice across a range of investment styles to suit investors’ individual needs and objectives”, Mr Reedman said.
Vanguard Active Global Growth Fund
The Vanguard Active Global Growth Fund is a global equity strategy investing in businesses which enjoy sustainable, competitive advantages growing their earnings at a faster rate than the market over the long term. Share selection is bottom-up and based on proprietary fundamental analysis.
The fund will have a base fee of 0.60% p.a., versus a category average of 1.06%1. The portfolio invests in 70 -120 growth shares with a long-term investment horizon, resulting in a low portfolio turnover.
In addition, the fund will employ a unique performance fee that participates both in outperformance and underperformance - which all active managers will experience from time to time - aligning the interests of the fund’s investment manager and its investors. This fee will be capped so that investors can expect a premium or discount to the fund’s base fee of +/- 0.0825% p.a.
The fund may be suitable for investors who are seeking long-term outperformance within the global equity sleeve of their portfolio either as a substitute for a current global growth strategy or to increase diversification in a portfolio overweight in Australian equities.
The strategy is managed by three of Baillie Gifford’s partners, all of whom have been managing this strategy since its inception in 2005 and have an average tenure of over 24 years. Baillie Gifford is a Scottish investment firm founded in 1908 with an investment approach differentiated by being very long-term, optimistic, growth-orientated, and high-conviction.
Vanguard Active Emerging Markets Equity Fund
The Vanguard Active Emerging Market Equity Fund consists of over 100 emerging market shares that capitalise on bottom-up fundamental research.
The Vanguard Active Emerging Market Equity Fund will have a base fee of 0.88% p.a., versus an average cost in this category of 1.15%2. This Fund will also employ the same performance fee arrangement as the Vanguard Active Global Growth Fund, participating both in outperformance and underperformance, capped at +/-0.165% p.a.
Managed by Wellington Management, Vanguard’s longest standing external active adviser, the investment team is a group of dedicated global industry analysts with unparalleled access to company management. They possess an average of 19 years of professional experience and have developed in-depth industry knowledge.
Through this experience each analyst has developed a framework that has proven most relevant to their philosophy, process and industry, with a simple share selection criterion: highest expected total return.
This strategy may be suitable for investors looking to enhance the risk-adjusted return of their portfolio over the long term. It could be considered as a substitute to a higher cost emerging market active manager; to complement a current exposure or diversify manager risk, or to increase a portfolio’s allocation to emerging markets with a low cost, diversified solution.
Vanguard Active Global Credit Bond Fund
The Vanguard Active Global Credit Bond Fund is designed to provide investors with a moderate and sustainable level of income by investing in a well-diversified portfolio of investment grade global credit fixed income bonds.
The fund will be offered at a fee of 0.40% p.a., versus the category average of 0.60%3, and will be open for investment in the coming weeks.
The objective of the fund is to outperform the Bloomberg Barclays Global Aggregate Credit Index in Australian dollars, by employing a fundamental approach to identifying the most attractive investment opportunities across the global credit universe.
The fund is highly diversified with investments focused on global investment grade credit markets.
Vanguard’s fixed income group will manage the fund globally with teams based in the US, UK, Australia and Hong Kong. Trading, management and research will be conducted across all regions. The group collectively have over 35 years of experience managing active fixed income portfolios, with Vanguard’s first active bond fund launched in 1982.
An active management leader
Vanguard has deep global roots in active management and partners with the world’s top active managers to provide clients with a diverse range of active funds.
Today, Vanguard’s actively managed mutual funds represent USD$1.4 trillion (AUD$2 trillion); USD$620 billion of which is managed by external advisers, including traditional active equity, bond, and balanced assets; USD$660 billion by managed the Vanguard Fixed Income Group, including taxable and tax-exempt bonds, and money market funds; and USD$40 billion managed by the Vanguard Quantitative Equity Group.
Vanguard currently partners with 25 advisers globally. As one of Vanguard’s longest serving advisers, Wellington Management currently manages in excess of USD$1 trillion in assets under management, and more than USD$360 billion on behalf of Vanguard funds globally across a variety of mandates.
Baillie Gifford, a Scottish investment firm founded in 1908, is one of the largest independently owned investment management firms in the United Kingdom and manages money primarily for institutional clients with AUD$355 billion in assets.
Vanguard’s Manager Selection and Oversight process
“Vanguard believes there are three critical factors which enable outperformance – top talent, low cost and patience – and these factors have guided our selection of active managers for these funds.
“These new funds source the best managers from around the world, a process which has been a fundamental part of our global active business for over forty years. We go to great lengths to identify and select talented global managers that meet the needs of local investors”, said Mr Reedman.
Vanguard’s Portfolio Review Department (PRD) has full-time responsibility for manager search and fund oversight. The department's 22 investment professionals attend more than 200 meetings with prospective managers annually and have regular conference calls and site visits with current managers. In addition, Vanguard’s Global Investment Committee - a senior management panel led by Vanguard CEO Tim Buckley - meets annually with each manager.
For more information about the new equity funds, including detailed product information, you can visit Vanguard’s website here. Further information will be available on the Vanguard Active Global Credit Bond Fund once available for investment.
1) Vanguard calculation using Morningstar data. Asset weighted management fee of funds included in the Australia Fund Equity World Large (inclusive of Blend, Growth and Value) category, excluding funds categorised as index or enhanced index. As at 30 June 2019. 321 funds included in sample.
2) Vanguard calculation using Morningstar data. Asset weighted management fee of funds included in the Australia Fund Equity Emerging Markets category, excluding funds categorised as index or enhanced index. As at 30 June 2019. 55 funds included in sample.
3) Vanguard calculation using Morningstar data. Asset weighted management fee of funds included in the Australia Fund Diversified Credit category, excluding funds categorised as index or enhanced index. As at 30 June 2019. 69 funds included in sample.
With more than AUD $7.9 trillion in assets under management as of 30 June 2019, including more than AUD $1.5 trillion in ETFs, Vanguard is one of the world’s largest global investment management companies.