Spotlight on Vanguard Global Equity Income 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: Vanguard’s Global Equity Income Fund is managed by two of our sub-advisers, Wellington Management Company and Vanguard’s Quantitative Equity Group. Both managers look for companies which provide a higher dividend relative to other companies within the marketplace. Wellington Management Company are fundamental stock pickers, so they will pick securities out of a wide range of securities using fundamental analysis. Vanguard’s Quantitative Equity Group use powerful algorithms to find companies where they deem there to be value.
Remember, drawing income can affect capital growth.
What is the objective of the strategy?
Ian Link, Wellington Management Company: The investment strategy of the Vanguard Global Equity Income Fund is to combine higher dividend yields, higher income from every stock that we buy, with capital appreciation potential. When you bring the two together it provides lower volatility returns and better returns than the broader market over the long-term.
John Ameriks, Vanguard Quantitative Equity Group: Well, our investment objective is pretty straightforward, it is to add value to the fund, above and beyond the benchmark, leveraging a variety of quantitative indicators in a very rigorous and controlled quantitative process.
How would you describe your investment philosophy?
Ian Link, Wellington Management Company: Our investment philosophy is one that focuses on higher quality companies and longer term investing. We look three to five years, sometimes even longer to buy those companies that can perform and outperform the market over a very long period of time. Our philosophy is also one that believes that higher dividend yields, higher income produced by the companies we invest in, provides a superior return versus the broader market.
John Ameriks, Vanguard Quantitative Equity Group: Our investment philosophy is fundamentally quantitative, and I can unpack that a little bit more. It is quantitative in that it leverages a very rigorous process that relies on data and algorithms to help us select securities. It is fundamental in that we use the same ideas that you would expect an active manager to use in assessing the economic basis for why one firm might do better than another in a given industry.
So what we do is we use the data and information that we have from a variety of providers, we have put together a set of metrics that help us choose which firms are likely to beat their competitors in the marketplace by delivering greater profitability, higher earnings and better returns over time than their peers, and then we use a risk-controlled process to put a portfolio of those firms together that we think will beat the benchmark.
Can you explain your investment process?
Ian Link, Wellington Management Company: Our investment process relies heavily on very experienced investors who are all over the world. Our team of eight individuals manages the Vanguard Global Equity Income Fund. We also have over 50 global industry analysts who are situated all over the world, in the US, Asia, Europe etc. The average experience of these analysts is over 20 years and therefore they can look at each individual sector as experts who have been following those individual companies for many, many years. This allows us then through our process to own a broad range of stocks from every kind of market and in every phase of development and valuation. This then allows us to build a diversified portfolio with strong longer term results.
John Ameriks, Vanguard Quantitative Equity Group: Our investment process is best described as a fundamentally-oriented application of quantitative techniques. We use an enormous amount of data on the operating characteristics of firms, we build models that we think put that data together in a particularly insightful way, and then we put together a rigorous portfolio management process that allows us to target the attractive firms and while controlling risk.
How does the team work?
Ian Link, Wellington Management Company: Our team is composed of eight people in the UK and the US, and they're augmented by over 50 global industry analysts spread around the world. These analysts will look at every sector all the way up and down the market cap spectrum, they’ll look for different kinds of stocks, they’ll look for high yield stocks, lower yield stocks, and we can select the very best ideas from these 50 investors that fit our strategy the best. We then combine them into a diversified portfolio, so that we can maximise not only the dividend yield, but the total return including capital appreciation.
John Ameriks, Vanguard Quantitative Equity Group: Our team is made up of a variety of different professionals that have a variety of different types of experience in the marketplace. We have PhDs that have credentials in areas from economics to physics to mathematics to finance. We also have highly sophisticated technical professionals that specialise in computer programming and managing our processes. Last but not least, we have folks with decades of experience managing money and submitting orders and trading in the marketplace.
What is your approach to risk management?
Ian Link, Wellington Management Company: Managing risk in our portfolio is very important and we do it on a number of different levels. We do it on an individual stock level, understanding the specific risks we're taking with every investment in the portfolio, and we do it on an overall portfolio basis. We have a number of resources at our disposal; we have risk experts who run reports for us on a daily, monthly and quarterly basis, so that we can really understand every risk that we're taking in that portfolio and most importantly that we as investors are being paid for the risks we're taking, so that we can maximise the overall return and minimise the volatility and the risk in the portfolio as a whole.
John Ameriks, Vanguard Quantitative Equity Group: Well, our approach to risk taking is to try to control or eliminate those risks that we don’t think can add value in a portfolio and to focus on taking risk where we think we’re adding value. One example of that is we try to eliminate our exposure to industry-related risks, for example, the amount of exposure to healthcare and technology in our portfolio will be very close to the benchmark, because we’re not taking a position as to which one of those sectors will outperform, we’re trying to choose the best firms within each of those sectors and derive outperformance in that manner.
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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