Five questions for Vanguard's new CIO
04 August 2017 | Topical insights
When Greg Davis joined Vanguard in 1999 as a bond trader in our Fixed Income Group, Vanguard's in-house equity and bond operations managed approximately £265 billion in assets in 59 funds, with all portfolio management and trading done from the firm's headquarters in Valley Forge, Pennsylvania. As at 30 June 2017, more than 400 investment management professionals in the United Kingdom, United States, Canada, Hong Kong and Australia manage more than £2.9 trillion in traditional funds and exchange-traded funds (ETFs).
For almost two decades, Mr Davis has been a key contributor to our track record, as a trader and portfolio manager, overseeing investment teams in the US and Australia, and now as our new global chief investment officer. We sat down with Greg to ask him about his career and his new role.
What are your initial thoughts on taking on the chief investment officer role at one of the world's largest asset managers?
I'm truly humbled by the opportunity to lead this highly talented global team of investment professionals. Even with the team spread across global locations, we have a truly collaborative approach to investment management that leverages the best expertise without being overly dependent on any one individual – we all learn from one another. Our global presence gives us local insights and helps us make the best decisions for our investors.
It's amazing to think that only a few decades ago, our portfolio managers worked just in Pennsylvania and kept track of investments on index cards. Today, we use world-class technology and have clear decision-making frameworks, accountability and processes worldwide. I would argue that we have the strongest and most sophisticated investment operations anywhere. Obviously we didn't get there overnight, and in my role I'm the beneficiary of the strong momentum established by the previous two chief investment officers – Tim Buckley and Gus Sauter. My goal is to continue to build on that momentum, to continue to deliver top-notch investment returns for our clients. Our team and investment processes are up to the challenge.
How did you choose investment management as a career?
Initially I thought insurance would be my career. After university I worked as an underwriter and a premium auditor. It was clear to me after a few years that my interest was more in the investment side of the insurance business, and to enter that field, I went back to school for my MBA.
Following graduate school at the University of Pennsylvania's Wharton School of Business, I worked on Wall Street, but my timing could not have been worse. I began my investment career during a financial crisis that included the Russian sovereign debt default and the collapse of Long-Term Capital Management. In addition, I quickly realised that Wall Street wasn't the right fit for me. After speaking with several mentors, they suggested a career with a top-tier investment manager would be much more fulfilling, so I looked to Vanguard. I still send periodic thank-you notes to those individuals for that great advice.
Who were your mentors?
I believe anyone who has achieved a certain level of success has benefited from having strong advocates, and I have the benefit of having had a number of mentors. At Vanguard they include Ken Volpert, who is the head of investments for Europe, the global head of fixed income indexing, and the person who hired me. He taught me the ins and outs of portfolio management, risk management and trading. Vanguard's new president, Tim Buckley, taught me to think well beyond the day-to-day of money management. He helped develop me into a broader leader. Our head of International, Jim Norris, provided great insight and perspective over the years as our business grew more global.
Outside of Vanguard, I have had tremendous support from my wife, Jami, and my parents. In addition, I had two mentors from my first internship on Wall Street who really helped provide me with the perspective and insight to join Vanguard. I have been extremely fortunate to have all of these people in my corner over the years.
Turning to the global stock and bond markets, where do we go from here?
We believe that the markets will likely produce returns over the next decade that are lower than the historical averages. In fact, our outlook for the equity and fixed income markets is the most guarded it has been in ten years. This is driven by a number of factors. On the fixed income side, lower starting yields, coupled with narrower spread levels in credit, will be the primary drivers of the lower expected returns.
On the equity side, elevated equity valuations, as measured by price/earnings ratios, coupled with the backdrop of decreased monetary policy accommodation, will likely serve as a headwinds to the historical averages.
What does this mean for investors? Our age-old advice to "stay the course" holds true. In this environment, as in most others, investors should focus on the key things they can control: identifying and focusing on long-term investment goals, maintaining balance and diversification, and minimising their investment costs.
How do you invest your own portfolio?
Like many Vanguard investors, my wife and I have more than one investment goal. First, we're saving for retirement, and we're also saving for our children's university educations. As you can imagine, my entire savings is in Vanguard funds to help us to achieve both of those goals. Given that retirement is still a way off, I'm heavily weighted to equities, both in index and actively managed funds, in the international and domestic markets. University, however, will be here in the blink of an eye, and while we may be ready financially, I'm not sure any parent is ever entirely ready emotionally!
Thank you, Greg.
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