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Video: Vanguard’s Sauter Urges Diversification to Reduce Risk

by on March 30, 2011

March 30 (Bloomberg) — George “Gus” Sauter, chief investment officer at Vanguard Group Inc., talks about the U.S. stock market, index funds versus active fund management, portfolio diversification and the outlook for the U.S. and global economies. Sauter speaks with Lisa Murphy on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

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Video: Lemco Says `Inevitable’ Portugal Has to Take EU Bailout

by on March 25, 2011

March 25 (Bloomberg) — Jonathan Lemco, a sovereign credit analyst at Vanguard Group Inc., talks about the likelihood Portugal will accept a bailout from the European Union. Lemco speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Credit Suisse’s Van Nostrand Expects Treasuries to Rally

December 30, 2010

Dec. 30 (Bloomberg) — Eric Van Nostrand, U.S. interest-rate strategist at Credit Suisse Securities, Jonathan Lemco, senior analyst at Vanguard Group Inc., and John Brynjolfsson, chief investment officer at Armored Wolf LLC, talk about the outlook for U.S. Treasuries. They speak with Carol Massar on Bloomberg Television’s “Street Smart.” (This is an excerpt of the full interview. Source: Bloomberg)

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Video: Vanguard’s Lemco, Auerbach’s Gushee Discuss Irish Debt

November 12, 2010

Nov. 11 (Bloomberg) — Vanguard Group Principal Jonathan Lemco, Auerbach Grayson Managing Director Charlie Gushee and Bloomberg’s David Lynch talk about Irish debt. They speak with Pimm Fox on Bloomberg Television’s “Taking Stock.” (This is an excerpt from the full report. Source: Bloomberg)

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Video: Vanguard’s Sauter Sees `Nervousness’ Among Investors: Video

September 22, 2010

Sept. 22 (Bloomberg) — George “Gus” Sauter, chief investment officer at Vanguard Group Inc., talks with Bloomberg’s Suzanne O’Halloran about the expansion of Vanguard’s Russell-based exchange-traded-funds business and the outlook for financial markets. (Source: Bloomberg)

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BlackRock Wields ETF Weapon to Expand Share of $2.7 Trillion 401(k) Market

April 22, 2010

By Amy Feldman and Sree Vidya Bhaktavatsalam April 22 (Bloomberg) — BlackRock Inc. is seeking to grab a larger slice of the $2.7 trillion 401(k) retirement market by using its position as the world’s biggest manager of exchange- traded funds to win over small companies. BlackRock is going after retirement plans with $50 million or less that have been largely ignored by big providers such as Fidelity Investments and Vanguard Group Inc. Investors in 401(k) plans have bought more than $2 billion of BlackRock’s iShares ETFs since the New York-based company began its push last year, Darek Wojnar , head of iShares strategy and research, said in a telephone interview. “Because iShares is so big, they’re a bellwether of where things are headed,” said Teresa Epperson, a partner at Mercatus, a Boston-based financial consultant. “I think it’s inevitable.” Exchange-traded funds have struggled to break into the retirement market as Fidelity, the largest 401(k) provider, Vanguard, the fifth largest, and most other large administrators have shunned them, saying they aren’t appropriate for long-term retirement savers. BlackRock is seeking to appeal to smaller plans, which often pay more for investment products, according to Wojnar. The funds are baskets of individual securities that are structured as stocks and bought and sold on an exchange. ETF costs are generally less than investments available to smaller plans. BlackRock is the biggest ETF manager, with $509 billion in iShares assets, followed by Boston-based State Street Corp. at $205 billion. Level Playing Field “It might level the playing field between the big employers and the small sponsors,” said Lawrence Petrone, director of research at Boston-based Financial Research Corp., which studies the asset-management industry. Raylon Corp., a third-generation family business in Reading, Pennsylvania, which sells furniture and hair-styling products to salons, switched from a mutual-fund plan managed by AXA Equitable to one built around ETFs run by Portland, Oregon- based Invest n Retire , according to Chris Raszkiewicz, Raylon’s director of finance. Raylon, which has $2.3 million in retirement assets among 90 participants, was able to almost halve its expense rate to 1.18 percent, Raszkiewicz said. “The bigger companies get better pricing, but for someone like us, this was perfect,” he said. The average expense ratio for ETFs was 0.57 percent of assets in 2009, compared with 0.99 percent for index funds and 1.41 percent for actively managed U.S. stock mutual funds, data from Chicago-based Morningstar Inc . show. Market Will Grow “Lower fees could mean the difference between an OK retirement and a very nice retirement over the long term,” said Tom Lydon , president and chief executive officer of Global Trends Investments in Newport Beach, California. The 401(k) market is estimated to increase 41 percent to $3.7 trillion in assets by the end of 2014, according to Boston- based Cerulli Associates. Exchange-traded funds now account for between $5 billion and $10 billion of 401(k) assets, according to Petrone at Financial Research. He said BlackRock’s ETFs used in 401(k) plans and other retirement accounts could surpass $100 billion over the next decade. Assets in 401(k) plans may grow to about 20 percent of iShares’ net inflows in five years, or about $10 billion a year, BlackRock’s Wojnar said. Higher Costs Fidelity, Vanguard, T. Rowe Price Group and Charles Schwab Corp., which collectively administer more than $1.2 trillion in 401(k) plan assets, said trading costs are higher for ETFs, because investors have to pay broker commissions on every trade. Savers who contribute small amounts from their paychecks in weekly or biweekly increments can get hit hard by those costs, according to Stephen Utkus, director of the Vanguard Center for Retirement Research. Pegi Almond, a T. Rowe Price vice president who works with 401(k) plans for the Baltimore-based firm, said that ETFs aren’t appropriate for 401(k)s for the same reason. “We have not received much demand from plan sponsors to offer it,” according to Fidelity’s Beth McHugh, a vice president in the Boston-based company’s 401(k) unit. Fidelity, the largest 401(k) administrator with $706 billion in assets, allows savers to buy ETFs only in plans that permit individual brokerage trading, according to McHugh. Fidelity doesn’t track how many people buy ETFs that way. Schwab does the same thing, according to James McCool , an executive vice president for 401(k)s at the San Francisco-based company. ‘Apples-to-Oranges’ Vanguard, the third-largest seller of ETFs, uses them for taxable accounts only, and sticks with mutual funds for its 401(k)s, according to Utkus, of the Valley Forge, Pennsylvania- based company. ETFs generally aren’t taxed until sold while mutual funds distribute taxable capital gains. Vanguard’s fees are low enough that there’s no cost advantage to its ETFs, he said. The Vanguard Total Stock Market Fund charges 6 basis points for institutional shares. The equivalent Vanguard Total Stock Market ETF costs 7 basis points. A basis point equals 0.01 percentage point. “Mutual funds don’t have bid-ask spreads, and they don’t have brokerage commissions,” Utkus said. “It’s an apples-to- oranges comparison.” State Street declined to comment. Fidelity, Vanguard, T. Rowe and Schwab are 401(k) administrators that also sell investment products for the plans, which may give them an advantage, and fees are often bundled together for both services. BlackRock, which has $276 billion in retirement plan assets, isn’t in the plan administration business. Small Companies Smaller companies often retain insurance companies and third-party administrators to run their plans, said T. Rowe Price’s Almond. Insurers handle 53 percent of the country’s 401(k) plans, representing 25 percent of assets, according to Cerulli. Insurance companies with large 401(k) businesses include Great-West Life & Annuity Insurance Co., Prudential Financial Inc. and Principal Financial Group Inc., according to an April 5 ranking of 2009 data by Pensions & Investments magazine. Exchange-traded fund assets in the U.S. surged 67 percent to $750 billion in the year ended in February, according to data from the Investment Company Institute in Washington, as investors sought low-cost alternatives to active funds, which are composed of individual securities picked by portfolio managers. Mutual funds in the U.S. held $10.97 trillion as of February, according to the ICI. Bruce Lavine , president and chief operating officer of New York-based WisdomTree Investments Inc., an ETF provider backed by hedge-fund investor Michael Steinhardt , said his company has about $50 million in assets from 401(k) investors from about 25 plans. ‘Blown Away’ “One advantage of ETFs that’s overlooked by the people entrenched in the 401(k) business is that ETFs have blown away the offerings in the index mutual fund space,” said Lavine, whose firm manages about $7.3 billion in ETFs. WisdomTree’s Emerging Markets SmallCap Dividend Fund is available only as an ETF and not through an index mutual fund, according to Lavine. The WisdomTree ETF returned 71 percent in the past year, compared with a 67 percent return for the MSCI Emerging Markets Index , Bloomberg data show. Larger plans sponsors may start exploring ETFs for their employees to stay competitive, Lavine said. “A year ago there were questions about whether it would be adopted,” BlackRock’s Wojnar said of ETFs. “The questions today are, how quickly? And how widespread?” To contact the reporters on this story: Amy Feldman in New York at afeldman16@bloomberg.net . Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net ;

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Mark Heisten Joins the Master Franchise Support Team

April 1, 2010

SAN MATEO, CA–(Marketwire – April 1, 2010) –   Vanguard Cleaning Systems , Inc. is pleased to announce the hiring of Mark Heisten as Vanguard’s Vice President, Business Development based in the San Mateo, California office. Mark brings a wealth of marketing experience to Vanguard from his prior career at Visa, a leading payment system brand, where he was Senior Business Leader of the commercial product marketing group. He was responsible for global marketing activities in the B to B segment.

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Dan Solin: A 401(k) Plan with No Conscience

February 16, 2010

I recently reviewed a 401(k) plan adopted by an employer. They switched from their old provider to a major insurance company. In part, they were influenced by the “Fiduciary Warranty” the insurance company gave them. Here’s what I found: The plan had thirty-one investment options. All but four were actively managed funds, with expense ratios ranging from 1.82% to 2.19%. The real shocker was in the balance of the funds. The Money Market Fund had an expense ratio of 1.58%. The S&P 500 Index Fund had an expense ratio of 1.54%. The two other index funds had similar expense ratios. To put these expense ratios in perspective, I checked the expense ratios of comparable funds from Vanguard: The Vanguard Prime Money Market Fund (VMMXX) has an expense ratio of 0.25%; The Vanguard 500 Index Investor Fund (VFINX) has an expense ratio of 0.18%. What do the hapless participants in the plan get for paying 600% or more for the index funds in their plan? Funds that significantly underperform the lower cost funds. What about the much hyped “Fiduciary Warranty.” I obtained a copy. Here is an extract: “While [insurance company] is not acting as a fiduciary for the plan in selecting and monitoring the investment options in our offering, [insurance company] stands behind our products.” Translation: The misnamed “Fiduciary Warranty” absolves the insurance company from fiduciary liability for putting overpriced actively managed and index funds in the plan. The plan participants are the real victims. The difference in the amount of money they will have available at retirement will be measured in the hundreds of thousands of dollars, because the plan options are not only overpriced but confusing. What are the chances of the average employee being able to put together a low cost, globally diversified portfolio in a suitable asset allocation from these investment options? This plan is the poster child for the urgent need for legislative reform. Yet Congress can’t even pass legislation requiring 401(k) providers to give transparent information about their fees or to accept real fiduciary responsibility for their advice. Without massive reform, the gravy train will continue. Dan Solin is the author of The Smartest Retirement Book You’ll Ever Read. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Americans Oppose Measures Limiting 401(k) Choices, Investment Group Says

January 8, 2010

By Jeff Plungis Jan. 8 (Bloomberg) — U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said. Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing lifetime payments, according to an institute-funded report today. The Washington-based institute represents the mutual-fund industry. “People value the tool of the 401(k),” Paul Schott Stevens , chief executive officer of the institute, said at a news conference in Washington. “They do not want government to take it away from them. They think the structure works very effectively.” Lawmakers have proposed changes, and the Obama administration will seek ways to promote conversion of 401(k) accounts after their average value fell in the past three years alongside a 46 percent drop in the Standard & Poor’s 500 Index. The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry , who are leading the effort. Tax Benefits The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts. Some lawmakers have questioned the public-policy value of the tax benefits for people investing in retirement accounts, the ICI said in a report today. U.S. direct-contribution plans, which include 401(k) and other employer-sponsored retirement programs, held about $3.6 trillion as of mid-2009, according to the report. They account for 25 percent of total U.S. retirement assets. Annuities, with $1.4 trillion, represent about 10 percent of U.S. retirement funds. The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded. Standing Firm Few Americans are giving up on their 401(k) plans, John J. Brennan , former chairman of the Vanguard Group, said at the news conference. From January to September of last year, 5 percent of participants stopped contributing, compared with 3.7 percent for all of 2008, Brennan said. The portion who changed their allocations was 9.9 percent. “Savers are sticking with 401(k) plans,” said Brennan, who serves as a senior adviser for the Valley Forge, Pennsylvania-based mutual fund firm. “There’s been no panic. It’s a different story than we would have seen 25 years ago.” Senator Herb Kohl , chairman of the Senate Special Committee on Aging, proposed legislation on Dec. 16 to require fund companies to do more to ensure 401(k) options are appropriate for workers. The Wisconsin Democrat cited reports that target- date funds designed for people retiring in 2010 invested in high-yield, high-risk corporate bonds. Representative George Miller , a California Democrat, is advocating legislation to require more disclosure about 401(k) fees paid by investors. The Education and Labor Committee, which Miller leads, approved a bill requiring more disclosure about fees in June. The ICI survey was based on a telephone survey of 3,000 households from Nov. 20 to Dec. 20 and had a sampling error of plus or minus 1.8 percent. To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net .

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Vanguard’s Low ETF Fees Help Late Arrival to the Market Increase Share

November 3, 2009

By Charles Stein Nov. 3 (Bloomberg) — Vanguard Group Inc. , the largest U.S. manager of stock and bond mutual funds, is gaining market share in exchange-traded funds, a business its founder John Bogle has criticized for encouraging speculation. Vanguard, the third-largest sponsor of ETFs, captured more than 30 percent of the money flowing into the business this year by charging an average fee of 15 cents for every $100 in assets, compared with 54 cents for the industry, according to Morningstar Inc . The Valley Forge, Pennsylvania-based firm’s ETF sales trailed only Barclays Global Investors, based on data through the third quarter. “If the price is low enough, investors will vote with their wallets,” Scott Burns , director of ETF analysis at Chicago-based Morningstar, said in a telephone interview. Vanguard started selling ETFs in 2001, later than its larger rivals. The firm is competing for customers who want to capture the returns of markets or industries, rather than individual stocks. ETFs caught on more than a decade ago with institutional investors such as hedge funds, and are gaining popularity with brokers and advisers who manage money for individuals. “Interest among those groups is phenomenal,” said Martha Papariello, principal with Vanguard Financial Advisor Services. Vanguard has $77 billion in ETFs, after inflows of $17.8 billion this year. The firm’s share of the market rose to 11 percent from 8.5 percent as of Dec. 31, according to Boston- based State Street Corp. , which sells the funds and tracks the business. Industry Growth IShares, owned by London-based Barclays Plc, is the market leader with $346 billion. It attracted $25 billion in 2009 Morningstar data show. State Street, second in ETF assets with $163 billion, had outflows of $25.8 billion. ETFs typically mimic indexes, while trading throughout the day like stocks. U.S. ETF assets increased 30 percent this year to $695 billion, according to State Street. Mutual-fund assets grew 13 percent to $10.8 trillion, according to the Investment Company Institute, a Washington-based trade group. State Street created the first fund in 1993. Barclays, which entered the business in 1996, agreed in June to sell the Barclays Global Investors unit to New York-based Blackrock Inc. for $14.2 billion. Vanguard got into the business in this decade as brokers moved away from a model in which they were paid commissions for selling products to one in which they charge a flat fee for managing money, said John Woerth , a Vanguard spokesman. There was no incentive under the old model for advisers to use Vanguard products “because we don’t pay for distribution,” he said. Vanguard Funds Vanguard is best known for its index mutual funds. Its first, the Vanguard 500 Index Fund , was started by Bogle in 1976. Bogle said that because so few portfolio managers beat market benchmarks over time, investors are better off buying index funds and paying lower fees. The Vanguard 500 Index Fund charges 18 cents for each $100 of assets. The average fee for an actively managed mutual fund is $1.25, according to Morningstar. “We follow Bogle’s philosophy: costs are paramount,” said Richard Ferri, a financial adviser in Troy, Michigan, with $300 million of client money invested in Vanguard ETFs. Criticism From Bogle Bogle, 80, criticized ETFs in a 2008 interview with Bloomberg Television, saying they encourage short-term trading. In a presentation this June hosted by the Web site IndexUniverse.com, he said ETFs are “great for institutional speculators,” and questioned their value for individual investors. Bogle was unavailable for comment, his assistant said. Bogle stepped down as Vanguard’s chief executive officer in 1996. Ferri said he prefers ETFs to index mutual funds because they are cheaper to own. Vanguard’s Total Stock Market ETF charges 9 cents for $100 in assets, half the 18 cents for the comparable index fund, Bloomberg data show. The Vanguard Emerging Markets ETF charges 27 cents per $100, compared with 72 cents for iShares MSCI Emerging Markets Index, data from the two firms show. Vanguard’s ETF attracted more than twice as much money in September as the IShares product, according to Morningstar. Vanguard’s Total Bond Market ETF has taken in more than three times as much this year as the rival iShares Barclays Aggregate Bond Fund , Morningstar data show. The Vanguard ETF has a lower fee, according to numbers provided by the companies. Smaller Investors Matthew Hougan, editor of IndexUniverse.com, in Bar Harbor, Maine, said Vanguard has probably done best among cost-conscious smaller investors who buy and hold their ETFs. The cost of holding an ETF isn’t “the end-all and be- all,” Hougan wrote in an e-mail. Bigger investors are more focused on transaction expenses and the ease with which an ETF can be bought and sold, he said. Barclays has had an edge in those areas because its funds have more assets and greater daily trading volume, he said. Vanguard’s Papariello said about 20 percent of her firm’s ETF sales were to institutional investors. Brokers, planners and bank trust departments account for most of the sales, she said. The ETF gains haven’t cut into the firm’s mutual fund sales, according to Papariello. Vanguard’s stock and bond funds attracted $74.2 billion in the first nine months of the year, the most among mutual fund companies, Morningstar data show. Vanguard has $1 trillion in stock and bond funds. To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net .

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