Vanguard Fixed Income Group: Structure, process and performance
23 May 2018 | Topical insights
John Hollyer: Hello, my name's John Hollyer, head of Vanguard's global Fixed Income Group.
Chris Alwine: And I'm Chris Alwine, the recently appointed head of our Global Credit team. I've been with Vanguard since 1990 and have over 20 years' experience managing investment portfolios. I was a taxable bond portfolio manager overseeing funds covering all sectors of the taxable market. I also led our Credit Research team and for the past decade have been the leader of Vanguard's Municipal Bond Group.
The recent personnel changes in the Fixed Income Group, or FIG as we like to call it, provides us a good opportunity to discuss how we manage portfolios and how we view succession planning and talent management. Succession planning is a big piece of my job, as well as my colleagues'. Our objective is that we strive to attract and develop the best talent, both internally and externally.
John Hollyer: And that's why we can say with confidence that as our team grows and people retire or resign, there's no change in our philosophy, our process or our performance. Succession planning is embedded in our organisation's structure, and it's why we employ a rotational approach to leadership. It's critical to our success that we develop people by putting them in new situations that stretch and grow their capabilities as investors and as leaders. We're heavily team-based, and our hub-and-satellite approach aligns teams to market sectors. A strong team with a deep bench can easily absorb the movement of people through rotation across teams or through attrition.
The Fixed Income team is a global and credentialed group with investment operations and research in Melbourne, Hong Kong, London, Pennsylvania and Arizona. In our collaborative model, we rely on our Investment Strategy Group for their economic insights, and we've embedded risk management into our investment process with Vanguard's Risk Management Group.
Chris Alwine: The Fixed Income Group is comprised of over 175 investment professionals. We utilise what we call the hub-and-satellite approach in managing our bond portfolios. This approach leverages all the resources and capabilities of the entire team. It allows for a consistent application of strategy across all our mandates. It is not a 'star' culture that is dependent on a single individual to drive results. Our structure is the polar opposite.
Let's take a closer look at our hub-satellite approach to managing the bond portfolios. At the centre of this structure is our Senior Strategy team, also known as the hub. This team is responsible for developing our strategic outlook and the investment policies for each of our funds. When we develop our investment outlook, it really is about developing our macroeconomic views as well as our monetary policy views. These are translated into strategies. For example, what is our duration? What is our curve positioning? What will the allocation be to credit quality and broad sectors?
This approach allows for a consistent application of views across all their portfolios that are customised, depending on each of the mandates. The rates and credit satellite teams are responsible for monitoring and allocating risk within their respective areas.
I am the leader of the Credit team and also a member of our Senior Strategy Group. My colleague Ron Reardon leads the Rates Group and is also a member of the Senior Strategy team.
If we take a deeper dive on the Credit satellite team, they're comprised of portfolio managers, traders, as well as credit analysts. Their primary responsibility is implementing hub strategies as well as driving tactical value-add into the portfolios. This is done through sub-sector allocation as well as security selection. The Credit satellite team also provides valuable input into the hub's decision making when it comes to developing our macro outlook as well as investment strategies.
We have a large Credit team comprised of over 60 investment professionals. Our senior team of portfolio managers and credit analysts average over 20 years of investment experience.
John Hollyer: These are our core strengths: A deep and seasoned team, scale and low costs, and a disciplined and risk-controlled process. Our people, our team structure and our process, our scale, and commitment to low cost have resulted in a solid and consistent performance track record. Attrition is only natural, and we're always poised to handle it. We have a great team, and we know it will continue to evolve over time. But our structure, our process and our discipline do not change.
Thank you for taking time to hear about our Fixed Income team. Our clients have entrusted us with over $1 trillion [about £730 billion; as at 31 March 2018] in assets, and it's our mission to give our investors the best chance for investment success.
Important risk information:
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results.
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