First 50 Funds update: Moneywise First 50 funds: Vanguard
What is Vanguard?
Vanguard began in the US in 1975. It launched its first investment fund in the UK in 2009.
It’s best known as a tracking or index company. Two thirds of the firm’s $3.6 trillion (£2.7 trillion) invested is in tracker funds and a third is in active funds.
This leads people to believe Vanguard is against active fund management [where stocks
are picked by a fund manager rather than chosen to track the performance of an index], but we’re not, we’re against high costs. We’re known for our low management fees.
Instead of paying dividends, we use company profits to lower the price of funds, which means more return goes into investors’ pockets. Our average, passive fund costs are 0.2% in the UK and Ireland.
What is Vanguard’s unique selling point?
The most important thing at Vanguard is our structure: we are a mutually owned investment company. This means we’re owned by the investors who buy our funds.
We are not owned by another company, and there are no external shareholders to consider, so we’re solely focused on clients.
The other benefit of this structure is that we can take good long-term decisions on how the company is run. Quite often, listed companies are under pressure to take short- term decisions in order to generate short-term profits for shareholders. However, we have the patience needed to take good long-term decisions. No other investment company in the world has this structure.
Tell me more about Vanguard’s view on active versus passive
If you’ve got an big appetite for risk and return, active can be a good place to fund it. The problem with active is that we can see who has been a great manager in the past, but it’s hard to spot them in advance. Past performance is no indicator of future performance.
Also active management is too expensive. There are lots of really good managers working for active funds, but they eat up fees.
How do I invest in a Vanguard fund?
You can invest with Vanguard via various platforms. These set their own minimum investment requirements.
We are not really set up for direct retail investment – you can only invest directly with us if you have a minimum of £100,000. We are, however, on the cusp of developing a service for investors to use directly that will probably have a significantly lower minimum requirement.
What are your top tips or investors?
- Understand. Know why you’re investing.
- Achieve a balance. Ensure you strike a balance between growth and risk, equities and bonds.
- Constrain costs. Execute your investments at the lowest price you can. Don’t believe the more you pay the more you get.
- Be disciplined. People feel they need to do something, but you don’t need to switch too much or time the market. Let time and compound interest do the heavy lifting.
Interview conducted on 19 August 2016.
Visit www.moneywise.co.uk/investing/funds to view Moneywise’s First 50 Funds for beginners.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
This is effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.