Vanguard Active Update: Views on current market volatility
23 March 2020 | Topical insights
Commentary by Matt Piro, Head of Portfolio Review Department, Europe
Vanguard currently partners with 26 external investment management firms, which manage around 80 portfolios on behalf of our clients globally. They employ a great variety of investment strategies, driven by many different philosophies and processes. In any particular market cycle, performance will vary from manager to manager, depending on their particular approach.
Through the current crisis, triggered by the COVID-19 pandemic, we have spoken to every firm running funds for Vanguard, discussing the impact of the crisis, including any action taken in the portfolio and their business continuity plans. Our managers tend to take a long-term view, with many exhibiting low turnover and only very gradual shifts in portfolio positioning over time. We believe this long-term thinking is an edge, especially in an environment that is increasingly focused on the short term.
Contact between Vanguard and our fund managers is always continuous, though it is of course stepped up at critical times. We remain especially vigilant on liquidity and positioning to meet any future needs.
The situation remains fluid and the scale, duration, and impact of COVID-19 on the markets and economy is uncertain.
While the current market environment is volatile, our managers view periods of heightened uncertainty as a time in which they should continue to focus on understanding the businesses they invest in from a long-term perspective.
It is essential to their competitive advantage that they look beyond short-term events that are difficult (if not impossible) to quantify.
Most of the managers employ a bottom-up, fundamental approach to stock selection and believe shifting environments create investment opportunities.
None of the firms have made any significant changes to their portfolios. During periods of crisis, the managers examine all of their investment scenarios. In addition to monitoring their existing investments, the portfolio management teams are constantly assessing changing metrics – such as valuations – that may signal fresh opportunities.
The current sell-off has already created openings for managers to add, selectively and cautiously, to positions where valuations have become compelling for patient long-term investors. They are also taking advantage of short-term price dislocations, either to start new positions or to upgrade the portfolio with holdings they believe have balance sheet strength and superior fundamentals.
Another common theme across the investment teams was their belief in their holdings: they are invested in companies that have the fundamental strength and management skill to successfully navigate through this crisis.
Business continuity plan
As is the case at Vanguard and across many other firms in financial services, business continuity plans are being enacted as required.
As a precautionary measure, travel has been reduced to a bare minimum, with particular focus on reducing travel abroad for the foreseeable future. Employees have been encouraged to cancel all non-essential business travel and seek a video call or to postpone visits to a later date.
Some are operating on, or testing, a two-week shift rotation basis, where a number of team members will work remotely for a period of two weeks while others work at the office. In these cases, each team avoids direct contact with the other. Remote access technology provides work from home capacity across our partners, and remote access work is exercised by all departments on a regular basis as part of the normal course of business.
Although they do not currently see any factors that would prevent them from fulfilling their obligations to their clients, our fund managers continue to monitor the COVID-19 situation and their plans, making adjustments as needed.
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.
The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.
The opinions expressed in this article are those of individual speakers and may not be representative of Vanguard Asset Management, Limited.
Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.
Issued by Vanguard Investments Switzerland GmbH.
© 2020 Vanguard Asset Management, Limited. All rights reserved.
© 2020 Vanguard Investments Switzerland GmbH. All rights reserved.