Vanguard has filed a registration statement with the US Securities and Exchange Commission for an actively managed emerging markets equity fund that will complement the firm’s existing emerging markets index fund. The new fund will be managed by four advisors, each of which will initially oversee 25% of the fund’s assets.
“The Vanguard Emerging Markets Select Stock Fund will offer a relatively low-cost, diversified option for investors who prefer an actively managed approach to this segment of the global market,” says Vanguard CEO Bill McNabb (pictured). “The new fund also provides investors with access to the best thinking of four highly regarded firms that have expertise in navigating this part of the investment world.”
The advisors are:
M&G Investment Management Limited, which is an advisor to two Vanguard funds—the USD5 billion Vanguard Precious Metals and Mining Fund since its inception in 1984 and a portion of the USD18.3 billion Vanguard International Growth Fund since 2008. Portfolio managers Matthew Vaight and Michael Godfrey will use a valuation-based, return on capital-focused approach to create a portfolio with no country or sector constraints.
Oaktree Capital Management, LP, which has served as advisor to the USD2 billion Vanguard Convertible Securities Fund since 1996. The portfolio managers, Tim Jensen and Frank Carroll, will employ a bottom-up research process to invest in a diversified portfolio, limiting exposures by country and industry to avoid concentrated bets.
Pzena Investment Management, LLC, which has provided investment advisory services to the USD47 million Vanguard US Fundamental Value Fund since 2005. (This fund is domiciled in Dublin, Ireland, and is available only to non US investors.) The firm will follow a deep value strategy to invest in stocks based on the research of the three portfolio managers, John Goetz, Caroline Cai, and Allison Fisch, supported by a team of analysts.
Wellington Management Company, LLP, which serves in an advisory capacity for 19 Vanguard funds representing USD195 billion in assets. Wellington has partnered with Vanguard since Vanguard’s inception in 1975. Portfolio manager Cheryl Duckworth, along with the deep experience of Wellington’s team of global industry analysts, will seek to add value through in-depth fundamental research.
Vanguard has offered both index and active funds for more than 35 years, and some 44% of the firm’s assets under management (USD732 billion) are in 73 actively managed funds. Of Vanguard’s 29 actively managed stock funds, 15 use a multi-manager approach.
The Vanguard Emerging Markets Select Stock Fund is expected to have an expense ratio of 0.95% (USD9.50 for every USD1,000 invested) which is 40% less than the 1.68% expense ratio of the average actively managed emerging markets fund.
“The greatest hurdle for investment managers to overcome is costs, which detract from fund returns, says McNabb. "At Vanguard, we believe that if costs are kept in check, active management can add value over time."