Fund management at Vanguard: An inside look
24 July 2017 | Topical insights
From modest beginnings decades ago, when portfolio managers kept track of positions on index cards, Vanguard Investment Management Group has evolved into one of the largest asset managers in the world.
Today, across three continents, this group manages more than £2 trillion in assets1 and employs more than 400 investment professionals. The work gets done in a highly collaborative manner that encourages a wide range of opinions and minimises overdependence on any individual.
"Vanguard leaders and portfolio managers are constantly learning and growing, which results in a deeper understanding of the markets, our funds and our operations," said Tim Buckley, Vanguard's president. "We believe in synergy, not silos."
The overriding goal for the group is to use the breadth and depth of Vanguard's global investment, risk management and investment strategy teams to provide superior investment results for our more than 20 million clients in the United Kingdom and worldwide1. To achieve that, the group is organised into several functional units, each fulfilling core responsibilities.
Vanguard's equity management at a glance
(Source: Vanguard, as at 31 December 2016.)
- Number of equity funds managed: More than 183 fund mandates globally.
- Number of equity investing professionals: More than 100 globally (29 Chartered Financial Analyst charterholders; 45 with postgraduate degrees; 7 with PhDs).
- Locations: Five global sites – London, Melbourne, Toronto and two in the United States.
Equity assets managed by Vanguard: about £1.7 trillion
Source: Vanguard, as at 31 December 2016. Does not include Vanguard fund assets managed by external partners.
Equity Index Group
The Equity Index Group manages all of our equity index funds and ETFs. Its responsibilities include both the world's first index mutual fund for individual investors and the world's largest mutual fund, which has assets of almost £390 billion1.
The index group benefits from these advantages:
- Global reach: Vanguard trading hubs are spread across the globe – in the UK, US and Australia – to allow trading coverage in all major market centres.
- Trading expertise: Each Vanguard trader understands the nuances of regional markets, has contacts with local brokers and possesses deep knowledge about the structure of markets.
- Lower costs: Vanguard portfolio managers in each region can lower costs for fund investors as they share and leverage global execution expertise and scale.
Quantitative Equity Group
The Quantitative Equity Group manages a family of quantitative funds and ETFs, as well as portions of our multimanager active equity funds. (Vanguard employs outside advisers for many actively managed equity funds and some fixed income funds.)
The group has employed a fundamentally driven and systematically implemented investment process for more than 25 years. Its product offerings have expanded to include more than 35 portfolios with more than £20 billion in assets. That includes our first factor fund, launched in 2013, and a number of factor funds introduced recently in the UK and Canada.
In addition to managing assets, the Quantitative Equity Group continually does research to create new models and to update existing ones with the aim of improving client returns, minimising volatility and lowering costs.
Vanguard's fixed income management at a glance
(Source: Vanguard, as at 31 December 2016.)
- Number of bond funds and ETFs managed: 65 globally.
- Number of fixed income professionals: More than 150 globally (71 CFA charterholders; 73 with postgraduate degrees; 4 with PhDs).
- Locations: Five global sites – London, Melbourne, Toronto and two in the US.
Fixed income assets managed by Vanguard: about £790 million
Notes: Assets managed by Vanguard Fixed Income Group, not including offshore separately managed accounts. Excludes Vanguard fund assets managed by external partners. Source: Vanguard, as at 31 December 2016.
Fixed Income Group
This group is responsible for all Vanguard fixed income funds managed internally, including funds using active and index strategies.
Vanguard got its start in fixed income management with money market (cash equivalency) funds in the early 1980s. In 1986, we launched the world's first bond index mutual fund. Today, it's the largest of its kind, with assets of about £130 billion1.
In the past three decades, we've launched more than 40 fixed income funds to meet investor demand for broad market coverage as well as for specific needs related to duration, credit quality and market segmentation. The product line-up now spans taxable fixed income funds and ETFs, municipal fixed income funds, and money market funds.
Portfolio management is a team effort, and that's especially evident in the active taxable and tax-exempt fixed income funds' "hub and satellite" approach.
The senior strategy group, or hub, sets out a common operating framework regarding the macroeconomic outlook, duration and yield curve positioning, credit risk, and sector allocations. Joe Davis, Vanguard's global chief economist, provides the economic perspective that helps set strategy for the funds. Then, satellite teams made up of portfolio managers, credit analysts and traders, in consultation with rate strategists, use the framework to build and manage the portfolios in a bottom-up manner that focuses on individual securities. Many of our bond funds with international exposure take advantage of the group's large-scale foreign exchange capability to hedge the effects of currency fluctuation.
Hundreds of professionals, one mission
The Vanguard "crew" working in the Investment Management Group play many different roles, but they are united by a commitment to give our clients the best chance for investment success, according to Mr Buckley.
"It all comes down to great people," he said. "Our philosophy is to always have the best team on the field and make sure we have a wealth of talent coming in behind them. People are our priority, because if you have the talent, we believe the shareholder will be well taken care of."
1 Source: Vanguard, as at 31 December 2016.
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