In what may be a sign of things to come in the active-versus-passive debate, Vanguard Investments has launched an initial range of three ‘active’ funds in Australia. Low-cost ‘active’ funds are likely to mushroom through the retail market. Are they really active?
Vanguard announced this week that it began adding active funds to its product line‐up in Australia with the initial launch of three quantitatively driven funds that complement existing index products.
Vanguard has a 20-year history in Australia and New Zealand as a major low‐cost provider of index managed funds and ETFs. The firm said the ability to offer active products here had been facilitated, in part, by efforts across the global organisation to integrate investment management teams in different regions and allow investors to benefit from the firm’s global scale.
The new products, managed by Vanguard’s Quantitative Equity Group. are: the Vanguard Global Quantitative Equity Fund, Vanguard Global Value Equity Fund, and Vanguard Global Minimum Volatility Fund.
Whether or not they are ‘active’ can be another aspect to the long-running debate of whether active is better than passive. There is no doubt, however, that they are a cheaper and, likely, a better-performing alternative – on average over time – to the traditional products on offer to advisers.
Helped along by the controversial ‘MySuper’ regulations, the desire for low-cost strategies has grown exponentially in the past several years. Whether or not these strategies are in the best interests of super fund members is a moot point.
Colin Kelton, Vanguard Australia managing director, said: “While Vanguard was a pioneer in the development of index funds, the company has been offering active funds since inception in the US, and today Vanguard manages more than $1.5 trillion in active assets globally.
“Vanguard has a long‐held conviction that there is a role for both index and active investments in a portfolio, and we are excited to offer Australian investors low‐cost solutions in both active and index funds… Our first active products are quantitative equity strategies and they bear the hallmarks of all Vanguard funds, diversification and low cost.”
The three funds will have an average management cost of 45bps a year compared with the average of 123bps for active equities funds offered in the market generally (according to Vanguard research).
Rodney Comegys, Vanguard’s head of investments for Asia Pacific, said that the firm had a team of 25 quant managers and had been doing smart-beta-type strategies for more than 25 years.
Vanguard does not use the term “smart beta” but, in the interests of better communications within the industry, that is what they are talking about. Two of the funds – the value fund and the low-volatility fund – are what used to be known as “tilted” index funds. Vanguard prefers the newer description of “factor-based” funds. Whatever…
Comegys, who heads up a team of about 75 investment professionals based in Melbourne to service the Asia Pacific region for the firm, said that Vanguard’s oldest funds – in the US – were active. Active management was not new to Vanguard, he said.
What we all know is that Vanguard has been using traditionally managed sub-advised strategies in the US for many years. What is new now is that the venerable firm is heading down the active path in Australia and New Zealand and the Asia Pacific region. How far it goes down that path is open for conjecture. Whether or not Vanguard’s next batch of active funds are sub-advised is not something that Comegys was prepared to comment on.
He said, however, that many investors wanted the opportunity to outperform the market and certain managers could offer that prospect. Those managers could also underperform.
* Greg Bright is publisher of Investor Strategy News (Australia)