Nine of the 20 passive funds Moneywise handpicked for its First 50 funds list are from one company: Vanguard. Moneywise's Helen Knapman spoke to Nick Blake, head of marketing and policy for Vanguard's European business, to explore its appeal.
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.