Displaying items by tag: vanguard

1. Rowe Price made an aggressive bet in 2020 by increasing exposure to equities in its target return funds, as equities were crashing due to the pandemic. At the time, the asset manager was criticized for this move; however, it’s paid off in spades, with the S&P 500 hitting new, all-time highs earlier this month. As a result of its success, T. Rowe Price now has the third-most assets in terms of target-date funds behind Fidelity and Vanguard. 

Further, T. Rowe Price has remained up to 98% invested in its target-date funds, which is higher than its peers. According to an analysis from Cerulli, retirees hold up to 55% of their portfolio in equities at T. Rowe Price. Compare this to Fidelity and Vanguard, where equity allocations are 38% and 30%, respectively. 

Despite its recent success, some continue to believe that T. Rowe Price’s target-date funds are taking on too much equity risk. According to Ron Surz, the president of Target Date Solutions, “80% of assets should be risk-free at retirement. Virtually all target date funds are way riskier than the theory they follow." However, some believe that higher allocations to equities are necessary given that lifespans are increasing, which increases the risk that retirees could outlive their savings. 

Finsum: T. Rowe Price is pursuing a more aggressive strategy than its peers when it comes to equity allocations in its target-date funds. So far, it’s worked well, but there are some skeptics.    

Goldman Sachs Asset Management (GSAM) is aiming to become one of the top 5 providers of model portfolios. Currently, GSAM is the ninth largest in terms of asset managers, with model portfolio assets of $14.5 billion. Over the next decade, model portfolios are projected to have more than $11 trillion in assets in total.

According to Alexandra Wilson-Elizondo, the co-CIO of GSAM’s multi-asset solutions group, the firm’s strategy is to outgrow its competitors rather than take existing market share as model portfolio assets are projected to grow 20% annually. Model portfolios consist of off-the-shelf strategies and custom models. Demand for the latter has been robust among wealthy clients.

Increasing adoption by financial advisors is the primary growth driver for the category. By decreasing time and resources spent on investment management, advisors can add more value in areas like client service, tax planning, and estate management. 

Currently, the leading provider of model portfolios among asset managers is Blackrock, followed by Wilshire Associates, Capital Group, and Vanguard. In 2019, GSAM bought S&P Global Market Intelligence, and it acquired NextCapital Group in 2022 to build the foundations of its model portfolio business.

Finsum: Goldman Sachs is aiming to grow its model portfolio segment and become a top-five provider among asset managers. Forecasts are for the category to grow 20% annually and exceed $11 trillion by 2030. 

On January 10, the SEC approved 11 spot bitcoin ETFs. Vanguard quickly made the decision to not offer a bitcoin ETF. The decision has been met with resistance from customers. Recently, CEO Tim Buckley provided more insight into this decision, given that this has been a constant source of inquiry.

Overall, the firm doesn’t believe that bitcoin is a suitable investment option for a retirement plan, given the asset’s volatility and speculative nature. Buckley also rejects the notion that bitcoin is a 'store of value’, pointing to its severe declines in the past and correlation with equities. For example, bitcoin dropped from $69,000 to $16,000 between 2021 and 2022, while the S&P 500 was down 21% during this period from peak to trough.

Buckley added that he doesn’t believe that Vanguard will offer a bitcoin ETF until something significantly shifts in the asset class. In contrast, Vanguard only invests in asset classes with underlying cash flow. With equities, this refers to the future earnings of a company. For bonds, it can be calculated through a bond’s coupon and principal. Since bitcoin has failed to function as an effective ‘store of value’ and generates no cash flow at the moment, it remains purely a speculative asset, which makes it inconsistent with Vanguard’s principles and ethos. 

Finsum: Vanguard is not offering a bitcoin ETF, unlike many of its major competitors. CEO Tim Buckley shared why bitcoin is more of a speculative asset and unfit for long-term investing. 

Emerging market bonds are offering a compelling opportunity for investors to lock in attractive yields while also having the potential for price appreciation. While there are many ways for investors to get exposure, the Vanguard Emerging Markets Government Bond ETF (VWOB) is one of the most liquid and diversified options. It currently pays a yield of 6.8% with an expense ratio of 0.20% and tracks the Bloomberg USD Emerging Markets Government RIC Capped Index.

Investing in emerging markets certainly means more risk due to lower credit quality, however the fundamentals are supportive of continued strong performance in 2024, while macro trends are favorable. JPMorgan estimates that emerging market economies will expand 3.9% this year, outpacing the 2.9% growth rate of developed market economies. It sees lower inflationary pressures due to weaker commodity prices which means that emerging market central banks should be able to cut rates, generating a tailwind for emerging market debt.  

In 2023, emerging market bonds were up 11%. JPMorgan is forecasting that the category should also have double-digit returns in 2024. It believes the major risk to this outlook is inflation not falling as expected which limits the ability of central banks to cut rates, especially since the market has already priced in modest easing. 

Finsum: Emerging market debt has major upside for 2024 due to attractive yields, strong fundamentals, and expectations that interest rates will be lowered. 

In 2023, yields started where they ended, although there was considerable volatility in between. Notably, yields dropped sharply following the collapse of Silicon Valley Bank in the spring amid concerns that it would spark a greater crisis. And, yields spiked in autumn with the 10-year Treasury yield exceeding 5% following an uptick in inflation.

In hindsight, this marked the bottom for fixed income as the Bloomberg U.S. Aggregate Index gained nearly 10% between the end of October and the new year. Looking ahead, Vanguard believes this strong performance will continue in 2024. 

In terms of its outlook, it sees inflation ending the year just above the Fed’s 2% target. It believes the Fed will ease policy, although they don’t see rates returning to the same lows as the previous cycle. It also sees the yield curve steepening as short-term rates fall further. 

The firm also acknowledges some risks to its outlook such as the economy continuing to be bumpy even within the context of a slowdown which could lead to false signals. Credit spreads have remained tight which means that there is greater risk in the event of a recession. High deficits mean that Treasury supply will be plentiful, adding upwards pressure to yields. Finally, inflation could re-ignite especially given geopolitical risks and prevent the Fed from easing even if the economy warranted it. 

Finsum: Many active fixed income funds are being launched with a specialized focus on a particular niche. These funds have outperformed amid the volatility in the fixed income market.