Vanguard took its first steps to disrupt the active market in 2018 – and one senior manager warned competitors this is only the start.
The global business, which entered the Canadian market seven years ago, launched four actively managed mutual funds in June this year: the Global Dividend Fund, the International Growth Fund, the Windsor US Value Fund and the Global Balanced Fund (asset allocation).
Tim Huver, head of product, Americas, said adoption has been strong and that the funds were a natural evolution for a company that has established itself as a major player in the US active market.
About a quarter of Vanguard’s global AUM, $5 trillion, is in active and while they are known for its passive products and as one of the founders of indexing, Huver said it had long identified Canada as a major opportunity.
He said: “Investors in Canada pay some of the highest fees for funds in the developed world. We saw this as an opportunity for investors to keep more of their returns on the active side by offering products that, if you look at the range of the four we launched, the first-year fees and management fees will be 34 to 40 basis points. It’s very, very low costs, giving investors more of their returns.”
Huver explained that Vanguard was able to start on the front foot with its suite of mutual fund products, which were flagship products that had already performed strongly in the US. This meant they are being overseen by “some of our best” existing managers who bring strong reputations.
He said: “The benefits of that is a long track record, in terms of the US value Windsor products that we brought to Canada. We have a history there that dates back to the 1950s so that shows the track record that investors have with managers that are well recognized, not only here but globally.”
Was the move to active in the Canadian market an acknowledgement of the return of volatility? Huver said he hasn’t seen a movement one way or another and that there are three factors he believes investors should instead be focused on: cost, patience and the ability to select top talent.
He said: “Those are the determining factors to investment strategy so I would just say on the patience side, we really take a long-term approach with our managers.
“We look not only at the returns but the qualitative in terms of people, the philosophy, and a sustained approach that we take. That long-term mindset also goes into the selection of our managers.”
Huver believes that despite all the noise, investors are gravitating towards core asset allocation and away from selecting hot stocks and funds. He added that the evolution of the fee-based models mean advisors' valuer proposition has changed and that it's more important for them to stay the course with their allocation and spend time on other areas that benefit clients like estate and tax planning.
And in terms of fees, Vanguard's reputation for pushing these down has only been enhanced this year and Huver believes it's a win-win for investors.
He said: "We've seen increased competition, which we think is positive and if we played a role in that, we're proud to do so. To see competitors bring their costs down, that's only helping more and more Canadian investors. We welcome that and think is positive for investors.
"There's fees but there's value that is proved not only through the investment mandate but also through supporting advisors with the tools we offer, the leadership we provide and the support for practice management. Fees alone aren't necessarily going to make the product decision, it really is fees plus the value that you're adding in support of advisors."
Follow WP on Facebook, LinkedIn and Twitter
More market talk: