Vanguard has launched two new actively-managed, low cost equities funds managed by external managers, as it kicks off a lineup of active funds in Australia.
The company has offered factor-based funds in Australia for roughly the past two years but this is its first foray into fundamentally-managed active funds.
The Vanguard Active Global Growth Fund will hold a portfolio of 70-120 growth shares with a low turnover.
The base fee is 0.60% p.a. plus an outperformance/underperformance fee capped at +/- 0.0825% p.a. The base fee is lower than the category average of 1.06% p.a., Vanguard said.
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The fund is managed by Scottish manager Baillie Gifford which has run the strategy since 2005.
Vanguard's second launch, the Vanguard Active Emerging Markets Equity Fund, will be managed by Wellington Management. It will hold over 100 emerging markets shares with a 0.88% p.a. fee and similar performance fee structure to the above fund.
Both funds are available as wholesale, unlisted unit trusts. They opened to investors today.
The company also has a third fund on the way, the Vanguard Active Global Credit Bond Fund will be managed by Vanguard's Fixed Income Group and open in the coming weeks.
Vanguard's external manager model
Vanguard is best-recognised in Australia for its low-cost index ETFs but it has tied up with external active managers since its start in 1975, Vanguard Australia head of product and marketing Evan Reedman said.
The company now has relationships with 35 external managers globally, and about a quarter of its total assets are in actively-managed strategies.
"Our relationships with Bailllie Gifford and Wellington go back more than 40 years. In fact Wellington was one of the first funds Vanguard offered almost 44 years ago," Reedman told Financial Standard.
Baillie Gifford also distributes in Australia through Colonial First State which offers its long-term global growth fund comprising a portfolio of 30 to 60 companies at a management cost of 1.13% per annum.
Vanguard is not deterred by its external managers' existing distribution relationships, unlike some others like Zurich who prefer to take exclusive distribution rights for the region.
"Our choice of who we partner with is not impacted by their other distribution arrangements in Australia. We are driven more by our conviction in the manager and the demand for the strategy," he said.
Reedman says Vanguard does not set assets under management targets for its new product launches but expects to add to the offering over time.
"We definitely have plans to expand the lineup in future as we see demand from our investors, including advisers," he said.
He said Vanguard was seeing demand for global equities strategies from Australian advisers but hadn't seen a noticeable appetite for global listed infrastructure.
It is also likely to look overseas for new manager additions to its lineup.
"At this stage, we are not looking at smaller or Australian managers, which is not to say we wouldn't. We really have the ability to scale a product and often small manager don't really have a lot of capacity."
New fee structures
The fee structure allows for the investors to pay lower base fee if the manager underperforms.
"The simplest way to look at it is that we are essentially taking the average of 3-year performance of the manager against the benchmark and comparing it on a rolling basis," Reedman said.
"The motivation in bringing these two to the market is to shift the conversation to outcome of the investors or money in their pocket, rather than gross outcome."