New active funds align with trustee control

Vanguard Australia’s recently launched low-cost active funds in the local market are expected to resonate well with SMSF trustees’ need for greater control over their investments.

“Vanguard’s been in Australia for over 20 years and we’re known almost exclusively as a major index provider, but 30 per cent of our assets globally are actively managed so we have the capability within the active side of investing,” Vanguard Australia head of market strategy and communication Robin Bowerman told selfmanagedsuper.

“In the Australian market, particularly for SMSF investors, we understand that people want exposure through index funds, but they also want to take active bets.

“An SMSF trustee is looking for control and part of that runs to investment choices and what they’re trying to [achieve], so we see it as an opportunity in Australia, particularly with the global funds as they are trying to give SMSF investors the opportunity to invest internationally through a low-cost, active product.”

The investment manager last week announced the expansion of its offerings with three low-cost active funds: the Vanguard Global Quantitative Equity Fund, Global Value Equity Fund and Global Minimum Volatility Fund.

Bowerman revealed the funds’ introduction was the start of a process to build out a line-up of active products in Australia.

“People should expect us to have a full range of active products in a few years’ time,” he said.

Commenting on the exodus of investors from active funds and Vanguard’s position in active management amid that environment, he said: “What we’re seeing, not just in the United States but globally including Australia, is that investors are realising that high-cost active management hasn’t delivered on the promise that there will be outperformance after fees.

“The results speak for themselves – the majority of active managers don’t outperform the market after fees, so do we see this as an issue? We see it more of an issue around costs.”

Vanguard believed there was a role for both passive and active investments in a portfolio, he said.

“It’s not a question of ‘should your index or should you be active’, but rather how you blend the two together,” he said.

“If you want broad market exposure at a very low cost, then obviously indexing is a very compelling case, but there are people who may want to take tilts in their portfolio, for example, towards value stocks and that’s when active funds management comes into its own.

“But we think the debate has become about ‘should you actively manage your portfolio or passively manage it’ where really the debate should be around low cost versus high cost.

“The cost is a headwind for active management, and the lower that cost is, the better the chance for the active manager to deliver on the promise.”

In Australia, the average management cost of active equity funds is 1.23 per cent, based on Vanguard analysis of Morningstar data as at 31 December 2016.

Vanguard’s three quantitative equity offerings have a management cost of 0.45 per cent a year.

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