Vanguard plans 3 new mutual funds, open to Personal Advisor Service investors only

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Vanguard, which pioneered low-cost funds that passively track the stock market, plans to launch three new actively managed funds later this year, but they will only be available to clients of the company’s advisory service, which charges an annual fee of 0.30%.

The funds – Advice Select Dividend Growth, Advice Select International Growth and Advice Select Global Value – will be offered to clients of Vanguard’s hybrid robot-advisor, the Personal Advisor Service.

Vanguard, which has a founding reputation for low-cost index funds, already has some actively managed mutual funds that stand out.

And although Vanguard’s advisory service has grown, it remains modest, at just $ 240 billion in assets of Vanguard’s $ 8 trillion total.

Clients of the advisory service have previously relied on Vanguard’s total market index to construct simple portfolios.

With the latest move, Vanguard recognizes that “active management is important, but concentrated active portfolios can help add value to your portfolio,” said Dan Wiener, editor of the Independent Adviser for Vanguard newsletter. Investors, which is independent from the company.

Advice Select Dividend Growth, managed by Wellington portfolio manager Don Kilbride, will be a version of the existing Vanguard Dividend Growth fund, a portfolio of around 40 stocks. Vanguard temporarily closed Dividend Growth to new investors in 2016, when it reached around $ 30 billion in assets. He reopened the fund to investors in August 2019. Today the fund has over $ 50 billion and is open to anyone with a minimum of $ 3,000 to invest.

For the Advisors-only Advice Select fund, Kilbride will run an even more concentrated portfolio – and that will cost investors almost double, with an expense ratio of 0.45% versus 0.26% for the Dividend Growth fund he has. managed in the past. decade and a half.

“Stack that on top of the 0.30% annual fee for PAS [the advisory service] and it’s starting to add up, ”Wiener said, totaling 0.75% per year. But that’s still relatively cheap for an actively managed fund with its track record, he added.

Scotland-based investment firm Baillie Gifford will manage Advice Select International Growth. As with Advice Select Dividend Growth, International Growth will be more concentrated and more expensive than its sister fund. David Palmer, manager of Advice Select Global Value, will be the manager.

“It’s refreshing to see Vanguard investing more in its low-profile active management talents,” said Wiener. “But we don’t know why he wouldn’t use the existing Dividend Growth and International Growth funds. Why launch concentrated versions of the first two funds and then limit them to a limited pool of investors? And if these distilled versions are really better, why not make them available to everyone, even if they cost more?

In addition, the acquisition by Vanguard of the direct index shop Just Invest could be a means of offering personalized index funds. Other companies such as BlackRock, Schwab and Parametric also offer what’s called direct indexing, said Herb Blank, senior quantitative analyst at Value Engine Inc. and senior consultant at Global Finesse LLC.

Instead of a simple index, direct indexing clients can add or remove certain holdings based on their beliefs or values, for example by eliminating companies that sell guns or tobacco, donate to certain political causes or which do not support the environment, social and governance issues.

“Direct indexing helps investors express their very different values,” Blank said. “Investors are now moving towards this concept. “

Today, individuals rely on mutual funds and exchange traded funds which provide a means of expressing their beliefs in the markets. The growth of ESG funds – focused on the environment, social and governance – is just one example.

This growing focus on high-profile public policy issues, such as executive compensation, has also led to an increase in campaigns launched against Corporate America by multiple activists.

A newcomer to the activist space is the American Conservative Values ​​ETF (NYSE: ACVF) which started trading in October 2020 and charges investors 0.75% per annum. More recently, the fund divested its positions and initiated a boycott of Bank of America Corp., Lowe’s Co., American Express Co. and Nasdaq, Inc. as part of a periodic portfolio rebuild based on its view of values. conservative policies.

Lowe’s, Bank of America and American Express “have embraced and started teaching their employees critical race theory,” said portfolio manager Tom Carter, an educational philosophy that “stresses that some Americans will always be oppressors, while others can never rise above an oppressed status and will forever remain victims. Such ideas run counter to American values ​​and to conservative investors who turn to our fund for advice. “

Critical Race Theory holds that white supremacy and structural racism are a defining feature of American law and society. However, the concept was once largely limited to discussion in legal journal articles and not to the general public.

“Giving conservative investors the power to address such concerns is one example of why we created ACVF,” said Carter, the chairman. “We are a free market society where everyone should have options available. “


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