When talking about active management, managers often cite their philosophy and process that sets them apart, but according to Tim Buckley, CEO of Vanguard, “the best way to evaluate” an active manager is to see if “they can tell you what their edge is.”
“What is their active edge? It has to be one that can’t be easily duplicated. You want one edge that nobody else has,” Buckley said at Exchange: An ETF Experience. “You can’t just say, ‘we have smart people, and collaborate well with technology.’ Everybody’s got smart people, and everyone’s got great technology. You can’t just say, ‘we think differently.’ We want you to prove it.”
Citing Vanguard’s own active fixed income capabilities, Buckley said that the firm’s edge in this space “that no one else can duplicate… comes from our structures.” Specifically, Vanguard’s ability to deliver fees lower “than almost everybody out there,” and in turn, these low fees don’t spur Vanguard to take unnecessary risks.
“You don’t have to take that extra spread or go out on credit quality and take extra risks there,” Buckley said.
The actively managed Vanguard Ultra-Short Bond ETF (VUSB) seeks to provide current income while maintaining limited price volatility. The fund invests in a diversified portfolio of high-quality and, to a lesser extent, medium-quality fixed income securities. The fund is expected to maintain a dollar-weighted average maturity of 0 to 2 years.
Under normal circumstances, the fund will invest at least 80% of its assets in fixed income securities. VUSB is designed to give investors low-cost exposure to money market instruments and short-term high-quality bonds, including asset-backed, government, and investment-grade corporate securities. Although short-term bond funds tend to have a higher yield than money market funds, their share price fluctuates.
The low expense ratio of 0.10% also allows the fund to “keep a lot of dry powder,” which Vanguard can deploy when spreads widen and dislocations occur in the market. “And with that strategy, you will outperform over the long run,” Buckley said.
At Exchange, Buckley said that Vanguard’s goal is “to make sure we’re producing the top performing funds and ETFs out there.”
“We’ll wrap it with low-cost, scalable advice and deliver them on a world-class, digitally enabled platform,” he added. “And if you do that well and you can keep improving it, you’ll create value into the future.”
For more news, information, and analysis, visit the Fixed Income Channel.