Vanguard flags lower expense ratios and enhancements for class-leading diversified funds
Vanguard | 09 May 2017
Vanguard Australia has announced that it will lower fees and revise the strategic asset allocation for its suite of diversified funds from July 2017.
Management expense ratios (MERs) will be lowered across five diversified wholesale funds, and the asset allocation revised across the full suite of diversified products, in line with Vanguard's mission of setting its clients up for long-term success.
Vanguard's range of diversified funds invest in a number of underlying Vanguard index funds. The multi-asset funds align with four risk profiles (conservative, balanced, growth and high growth) which give investors the option of building portfolios based on their appetite for risk, while the Vanguard Diversified Bond Index Fund is primarily suited to investors focused on generating steady income.
These funds are predominately used by self-managed super fund investors and financial advisers, who both value the efficiency of being able to gain exposure to a broad selection of asset classes through a single low-cost fund.
Vanguard's diversified funds have performed in the top quartile of their peer groups over three, five and 10 years according to Morningstar, with their success attributable to Vanguard's disciplined approach to low-cost investing.
Vanguard Australia Head of Product and Marketing, Evan Reedman, said the changes were part of an ongoing process of ensuring the diversified funds continued to give client's the best chance of achieving their investment goals.
“Our diversified funds are one of our core product offerings, allowing investors to access several of our high-quality index funds in a single transaction. They represent both Vanguard's commitment to low cost, and our disciplined and sophisticated investment processes,” he said.
“These changes are part of a consistent evaluation of our funds to see where we can make improvements and how we can ensure they continue to best serve our clients.”
Growing efficiencies mean lower costs for investors
From 1 July 2017, costs across the entire suite of wholesale diversified funds will come down.
| Fund||Current MER %||MER % from 1 July|
|Vanguard Conservative Index Fund||0.33% p.a.||0.29% p.a.|
|Vanguard Balanced Index Fund||0.34% p.a.||0.29% p.a.|
|Vanguard Growth Index Fund||0.36% p.a.||0.29% p.a.|
|Vanguard High Growth Index Fund||0.37% p.a.||0.29% p.a.|
|Vanguard Diversified Bond Index Fund||0.34% p.a.||0.29% p.a.|
“Vanguard regularly reviews its full range of funds to see where we can use efficiencies of scale to bring the cost of investing down for our clients. This means they get to keep a higher share of their returns, which ultimately helps them in realising their investment goals,” Mr Reedman said.
When these reductions take effect on July 1, Vanguard Australia will have lowered MERs on 10 of its active and index funds in 2017 alone.
MER reductions across Vanguard's index and active products that have already taken effect this year include:
- The Vanguard Global Quantitative Equity Fund, Vanguard Global Value Equity Fund, and Vanguard Global Minimum Volatility Fund all reduced from 0.45 per cent to 0.35 per cent
- The Vanguard All-World ex-US Shares Index ETF reduced from 0.13 per cent to 0.11 per cent; and
- The Vanguard US Total Market Shares Index ETF reduced from 0.05 per cent to 0.04 per cent.
Greater focus on global assets to account for concentration risk
Vanguard's Investment Strategy Group, a global team of researchers and analysts, set the asset allocation of the Australian diversified funds as part of a robust framework used by Vanguard globally. These investment experts analyse issues such as concentration risk and currency exposure, and incorporate output from comprehensive modelling generated by Vanguard's proprietary forecasting engine, the Vanguard Capital Markets Model.
Vanguard Head of Investment Strategy Group, Asia Pacific, Jeffrey Johnson, said much of the changes flagged for the diversified funds were aimed at addressing concentration risk.
“This round of asset allocation adjustments will particularly help us manage concentration and currency risk across our multi-asset funds,” he said.
“For instance, we are lowering allocations to Australian shares and REITs, while increasing exposure to global shares as we seek to account for Australia's more concentrated sharemarket. The multi-asset funds will also have a portion of currency-hedged global shares, which will help us manage currency risk over short-to-medium timeframes.
“Across the entire suite of funds, including the Vanguard Diversified Bond Index Fund, we will have a greater allocation to global bonds, which reflects the concentration of the Australian fixed income market.”
The Investment Strategy Group reviews the diversified funds' SAA annually to ensure they are set up to achieve their long-term objectives of performing in line with their risk profiles. Vanguard most recently updated its diversified funds SAA in 2013.