Spotlight on Vanguard Global Equity Fund
27 November 2018 | Portfolio construction
Vanguard Global Equity Fund is managed by two managers. Wellington looks for companies that are undervalued. Baillie Gifford looks for good growth potential
Sarah Gibb-Cohen, Head of Equity Product Management, Vanguard Europe: The Global Equity Fund is managed by two managers, Wellington Management Company and Baillie Gifford. They have two distinct but complimentary styles. Wellington Management Company looks for companies within the market that other people think are undervalued. Baillie Gifford looks for companies with good growth potential. By combining these two within one portfolio, we believe that investors will have a core holding they can hold for the long-term.
Remember that equity investment can be uncertain.
What is the objective of the strategy?
David Palmer, Wellington Management Company: The investment objective of the strategy is to outperform the global equity markets over a full business cycle by investing in companies that have recently disappointed the investment community and scared people away from what might be good longer term opportunities.
Charles Plowden, Baillie Gifford: The investment objective of our fund is to outperform a global benchmark of stocks over longer time periods, principally by investing in companies that will grow their earnings and profits at a faster than average rate over time.
How would you describe your investment philosophy?
David Palmer, Wellington Management Company: So the starting point for our investment is usually other investors’ endpoint, so we’re looking for situations where other investors are walking away from situations that they find to be either disappointing or frustrating, and if you're looking to outperform or to provide better performance than other intelligent people in the market, you need to find a time when smart people are not making smart decisions, and that is usually when people become emotional, frustrated or disappointed with their results and that is where we come in to engage on the other side.
Charles Plowden, Baillie Gifford: Our investment philosophy is to focus on finding and then investing in above average growth companies, so companies that will grow at an above average rate over the long term and then, importantly, to hold those companies for the long term, by which we mean five years or more.
Can you explain your investment process?
Charles Plowden, Baillie Gifford: Our investment process is relatively simple, it is based on fundamental stock analysis, so looking at individual companies, rather than economies, and we have the advantage of having 100 investors in one office in Edinburgh, in our headquarters, and we seek to channel the ideas of all our 100, the best ideas of those 100 make it into the portfolio through a process of filtering. And the ultimate decisions are made by a small team of three portfolio managers.
David Palmer, Wellington Management Company: So our investment process has three stages: idea generation, research, and implementation and positioning.
For the most part, the stocks that we look at have some meaningful negatives that people are associating with them, and our research is focusing on trying to take some of those negatives off the table so that, in aggregate, as a whole portfolio, everything on average can do a little better. We will still have some stocks that disappoint us, but over the whole portfolio, if everything does a little better, then we should win.
How does the team work?
David Palmer, Wellington Management Company: So I am the portfolio manager for the fund, but also I have a team of equity analysts who support me directly and then we’re also part of the broader Wellington solar system of analysts, several hundred investment professionals scattered around the world across investment disciplines and across different strategies. We take part in that dialogue and, ultimately, we’re looking for the types of investments that will fit our discipline.
Charles Plowden, Baillie Gifford: The team looking after the Global Alpha portfolio consists of three portfolio managers; myself and two others who are both partners in our firm, together with three analysts, and the important thing is that the three portfolio managers have worked together on this strategy for 13 years.
What is your approach to risk management?
David Palmer, Wellington Management Company: So most of the risks that we encounter in our investment strategy relate to the risks of individual companies that we own, but there is also the risks of currency, geographic exposure, and industry sectors. We ultimately look at risk in many different ways to make sure that the risks that we’re exposing the investor to are the ones we believe they are being paid for and, ultimately, to tamp down the risks that we believe are not being compensated.
Charles Plowden, Baillie Gifford: The most important risk to us is the risk of permanent loss of capital, so when an investment goes wrong. We don’t worry about short-term volatility in share prices, we focus on the long-term, so the main process we use for managing risk is portfolio diversification, making sure we own a spread of investments at different stages of evolution in different countries and in different industries, and the balance is the risk control.
Investment Risk Information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate.
Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.
Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.
The funds may invest in financial derivative instruments that could increase or reduce exposure to underlying assets and result in greater fluctuations of the fund's Net Asset Value. Some derivatives give rise to increased potential for loss where the fund's counterparty defaults in meeting its payment obligations.
This video is directed at professional investors in the UK and should not be distributed to, or relied upon by retail investors.
The material contained in this video is not to be regarded as an offer or solicitation to buy or sell securities not does it constitute legal, tax, or investment advice.
The Authorised Corporate Director for Vanguard Investment Funds ICVC is Vanguard Investments UK, Limited. Vanguard Asset Management, Limited is a distributor of Vanguard Investment Funds ICVC.
For further information on the fund’s investment policy, please refer to the Key Investor Information Document (“KIID”). The KIID and the Prospectus for this fund is available from Vanguard via our website https://global.vanguard.com/.
Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.
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