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Vanguard active fund closure highlights challenge in Europe

Vanguard Group Inc

Vanguard active fund closure highlights challenge in Europe

Low-cost provider’s passive fund growth is vastly outpacing its actively managed business

Experts say it will take time for Vanguard to build its profile in Europe as an active fund manager © EPA

The closure of Vanguard’s Irish-domiciled actively managed US Fundamental Value fund highlights how the growth in its active business in Europe is lagging behind that of its passive offering.

The directors of Vanguard’s US Fundamental Value fund said the institutionally oriented product’s low level of assets meant it was generating insufficient fees. It had £15m in assets at the end of August 2020.

It was “in the interests of the shareholders of the fund” to redeem the remaining investors in the fund and to wind it up on October 8, the directors said.

The company’s passive funds in Europe have almost doubled in size over the past four years, growing from $106.8bn at the end of 2016 to $211bn by September 2020, according to data from Lipper at Refinitiv.

By contrast, Vanguard’s actively managed funds have grown by 45 per cent over the same period.

This article was previously published by Ignites Europe, a title owned by the FT Group.

Assets under management for the firm’s actively managed funds now stand at $6.3bn, excluding funds of funds. This is 2.9 per cent of the firm’s European funds business, a smaller percentage than in 2016, Lipper data show.

Experts said it would take time for Vanguard to build its profile in Europe as an active fund manager, having been so successful as a passive brand.

“In Europe, the Vanguard brand is so strongly associated with passive funds that its incursion into actives is still at a nascent stage,” said Amin Rajan, chief executive of consultancy Create-Research.

“Vanguard’s brand is based on its low-cost, plain-vanilla passive funds. While the European institutional investors are increasing their allocation to such funds, Vanguard’s active offerings are not high on their shopping list.”

Dewi John, head of Lipper research for the UK and Ireland, said: “It’s certainly true that individual asset management firms are often associated with particular investment approaches.

“It is possible to change the perception of a firm’s capabilities, but investors will want to see hard evidence of this.”

Chris Chancellor, senior director for global insights at Broadridge, was more positive Vanguard would be successful at building both an active and passive business in Europe, as it has done in the US.

He said that so far demand for low-cost active products had been low in Europe and had been focused on factor investing, where Vanguard “has some presence that could grow”.

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He said Vanguard had been “growing its brand presence” among fund selectors and ranked among the 20 most popular fund management brands in Europe.

“This means it has a seat at the table to discuss with clients a variety of issues and solutions — one of which may be active,” Mr Chancellor said.

Vanguard said its active funds had been in demand this year.

“In a particularly volatile year for the markets, during which the UK active industry has struggled with outflows, we have continued to see strong interest in our UK-domiciled active range.

“Indeed, as investors continue to seek out high-quality, low-cost funds, we’ve seen £380m (€419m) in net cash flow into these products year to date,” Vanguard said.

“We believe that low-cost active and indexed funds will continue to play important roles in investors’ portfolios. High-cost funds, however, will not,” the company added.

Mr Rajan said the closure of one active fund was “unlikely to cause any ripples” for the company.

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at igniteseurope.com.


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