Vanguard: A change at the helm, but no change in course

03 October 2017 | Topical insights


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Vanguard Chief Investment Officer Tim Buckley was recently named president and director of Vanguard. He will succeed Bill McNabb as CEO on 1 January 2018. Greg Davis, global head of our Fixed Income Group, has assumed the position of chief investment officer.

In this video, Bill, Tim and Greg discuss topics ranging from the leadership transition to their shared passion for baseball.

Rebecca Katz (moderator): Just a few weeks ago the Vanguard board of directors named Tim Buckley, Vanguard's chief investment officer, to be president and director of Vanguard, with plans for him to succeed Bill [McNabb] as CEO on January 1, 2018.

Now with Tim stepping into his new role as president, that means that Greg Davis has stepped into the role of chief investment officer. We won't be saying goodbye to Bill quite yet. He is remaining on as chairman of the Vanguard board. But I do think we've said goodbye to that [Philadelphia] Phillies [baseball] record. So gentlemen, thanks for being here in studio to talk to our clients.

Greg Davis (Vanguard Chief Investment Officer): Great to be with you.

Bill McNabb (Vanguard Chairman and CEO): Good to be with you, Rebecca, and I'm glad my market outlook has been a little more accurate than my baseball outlook!

Rebecca Katz: So are we!

Tim Buckley (Vanguard President and CEO-designate): Little did you know you ended up back with a [Boston] Red Sox fan. The era turns again.

Rebecca Katz: So with that, I have to ask the first question. And that's to you Bill. Bill, why now?

Bill McNabb: Rebecca, it's the question everybody's asking. And for me it's pretty simple. It was really three things. It was the right time. I'm in my tenth year as CEO. And I think that's a long period of time. [I] started in the middle of the financial crisis, as you remember. And it feels like we've been able to accomplish a few things. In a sense, it's time to let another team, if you will, take the reins. And you get the right people, and having Greg and Tim here, I just feel great.

As a client and as somebody passing the torch, I know Tim's going to be a phenomenal, phenomenal CEO and continue, hopefully, in maintaining our values, but driving new ways of doing things. And then, Greg as CIO.

So I think we're just in incredible hands. And actually Tim and Greg are part of what I think is the best leadership team in investment management. We have a great group of people here who've really got a ton of experience. So, again, for me it just felt appropriate, given all of that.

And then on the personal side, I've got three young, and as I describe them, very boisterous grandsons who would love a little bit more time with me. And I think I'm going to be able to do that as well.

Tim Buckley: I think he's pretty excited about that, Rebecca. He's always had a spring in his step, but he's, like, bounding down the halls now!

Bill McNabb: My daughter has told me my first soccer coaching assignments are coming shortly.

Rebecca Katz: I see, I see, yes! And we all are noticing your tie, and we wonder if that's a little bit of a hint of something you might get in retirement, too.

Bill McNabb: I am a dog guy, and I'm kind of pining away for my next dog, so that could happen soon, too.

Rebecca Katz: Tim, in your 26 years here at Vanguard, you have been in many, many roles across the organisation. So as you reflect back on the things you've done and look forward, what kinds of trends do you think will most impact investors?

Tim Buckley: Rebecca, I think about three dominant trends out there.

The first would be – the elephant in the middle of the room is indexing. It will continue to win the day. It will rule the day against active investing until active managers lower their fees. And I say active managers outside of Vanguard, because our fees are already low. And why is that? Over our careers, active management has gotten more and more and more competitive. Going after excess return – Greg knows this, he did this for a living – against professionals, 90% of assets are professionally managed, it is a tough business.

And it's really tough to get that excess return. And when you get it, it's usually not outsized. So your fees can't be outsized. And you have to lower those fees. So the simple bid is, if your excess return is 70 basis points, great. You can't have a 100-basis-point expense ratio. You're taking it all for yourself. So you have to lower those expenses, and active management works. And we're proving that here at Vanguard. So that's a big trend that will continue until fees come down.

The second is really around advice; in that the cost of advice and the accessibility and ease-of-use of advice is going to change dramatically. Costs will plummet, ease-of-use will soar. And that's really a question of technology. The technology is making it much easier to scale advice, where you can have an engine that does asset allocation, reporting, rebalancing, and does it, in a way that you can scale and deliver excellence to everyone.

The third one is – I'm sure Greg or Bill would agree with this one – it's global investing. We hear a lot of rhetoric from all the politicians around the world [about] increasing nationalism and global trade. Greg, I think it's basically plateaued and [is] maybe tipping down a little bit. We hope that doesn't happen with people's personal investing. Because when you look at things like uncertainty in China. There's a mountain of debt in China; what will happen with it? Has Europe really turned the corner from austerity to growth? Or will they fall back? Are valuations too high in the US? All of these questions.

The four of us could debate it. And we could have a really good discussion. But at the end of the day, we couldn't give you a certain answer on any one of those questions.

So the best solution there is diversification. And that's that global diversification.

Rebecca Katz: Well, let's talk about globalisation a little bit. Because Greg, this is actually not your first gig as CIO. You were CIO in our Asia Pacific region as well as head of Global Fixed Income. So how has globalisation changed the actual practice of investment management?

Greg Davis: When you think about our teams, the way we're set up, we have four global teams. One in Malvern, Pennsylvania; one in London, England; one in Melbourne, Australia; and we also have a team in Scottsdale, Arizona. The real benefit is the fact that we have experts in the local markets. So when we're trading JGBs, which are Japanese government bonds, or Japanese equities, we have people in the Asia-Pacific time zone [who] are experts in those markets. So we get the very best execution for our clients.

But it also gives us something else. It gives us access to a broader talent pool. So in the past, our talent pool has been primarily regional, or maybe even national. But now it's truly a global talent pool. We're accessing talent all throughout Europe, all throughout Asia. So that's going to allow us, not just to do well now for our clients, but also to do well for our clients for decades to come.

Important information:

This video is directed at professional investors and should not be distributed to, or relied upon by, retail investors.

This video is designed only for use by, and is directed only at, persons resident in the UK. It is for educational purposes only.

This video was produced by The Vanguard Group, Inc. It is not a recommendation or solicitation to buy or sell investments.

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.

The material contained in this video 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.

Opinions expressed in this video are those of the individual speakers and may not be representative of Vanguard Asset Management, Ltd.

Issued by Vanguard Asset Management, Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.


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