Displaying items by tag: vanguard

Stocks whose prices trail their implied intrinsic value are often seen as attractive investments primarily due to their undervaluation. But a recent article by Vanguard suggests another reason value stocks may be worth considering now. Historically, value stocks have outperformed their “growth” counterparts in times of economic recovery.

The report quotes Kevin DiCiurcio, CFA, head of the Vanguard Capital Markets Model® research team, as he makes the case. “So, if you believe that the Federal Reserve may have engineered a soft landing—that we’re going to sidestep a recession and that the economy’s next move is an acceleration—the case for value is strengthened.”

According to their research published in August, 2023, Vanguard estimated that value stocks were priced more than 51% below their fair value prediction. They stated, “It’s well-known... that asset prices can stray meaningfully from perceived fair values for extended periods. However, as we explained in (previous research), deviations from fair value and future relative returns share an inverse and statistically significant relationship over five- and 10-year periods.”

This observation adds one more reason value stocks are worth a look. In addition to favorable valuations and historically consistent dividends, the possibility that value stocks may shine during the coming economic recovery many anticipate, is another factor to consider. Whether held directly, within a passive allocation, or as part of a Separately Managed Account, now is a perfect time to revisit the case for value stocks in your client’s portfolios.

Finsum: Vanguard's research highlights value stock historical outperformance during economic recoveries.

Vanguard recently expanded its tax-exempt bond ETF lineup with the launch of the Vanguard Short-Term Tax-Exempt Bond ETF (VTES), which is built to help investors earn consistent, tax-exempt income. The fund’s objective is to track the performance of the S&P 0-7 Year National AMT-Free Municipal Bond Index using a sampling technique to closely match key benchmark characteristics. The index measures the investment-grade segment of the U.S. municipal bond market with maturities between one month and 7 years. This is Vanguard’s first US-listed ETF launch in nearly two years. The ETF, which is managed by Vanguard Fixed Income Group, has been listed on NYSE Arca with an expense ratio of 0.07%. Sara Devereux, Global Head of Vanguard Fixed Income Group had this to say about the launch, “The Vanguard Short-Term Tax-Exempt Bond ETF is built to optimize tax efficiency for investors seeking to allocate to the shorter end of the municipal bond market. The new ETF complements our broad fixed income line-up and provides clients with another avenue to tap our municipal bond team’s talent and capabilities.”

Finsum:Vanguard expanded its tax-exempt bond ETF lineup with the launch of the Vanguard Short-Term Tax-Exempt Bond ETF (VTES), its first US-listed ETF launch in nearly two years.

Vanguard, which is the second-largest ETF issuer, is planning to go all in on direct indexing. That is according to Tim Buckley, Vanguard CEO, as he was being interviewed on stage at the recent Exchange ETF conference. Buckley said that Vanguard looked at direct indexing years ago and started thinking about it. He stated, "What's a way that you could disrupt the ETF or the mutual fund? You always should be looking if there is a better way to do it." While direct indexing has existed for some time, it is typically only reserved for the "ultra, ultra, high-net-worth," according to Buckley. The CEO added "And we can see that … there's huge tax benefits for a lot of investors in using direct indexing." He said that the idea of creating portfolios that don't undermine people's retirement but let them invest in line with their values was something the fund firm found interesting. Instead of hoping that direct indexing would go way, Buckley said Vanguard decided to embrace it and "see if it is a better way to do something." He added, "And we'll find out over time. But we'll be investing heavily." The fund giant, which manages $2 trillion in assets across 81 US-listed ETFs, started its move into direct indexing in October of 2021, with its purchase of Just Invest and its direct investing platform, Kaleidoscope.

Finsum:According to Vanguard’s CEO Tim Buckley, the fund firm plans to go all in on direct indexing as there are huge tax benefits for a lot of investors.

According to Vanguard, investors that allocated part of their portfolios to low-yielding municipal bonds at the beginning of last year should now be looking forward to the prospect of higher income, thanks to a rapid rise in rates. In a fixed-income report for the first quarter, the fund firm wrote, “Following a year with $119 billion of outflows from municipal funds and ETFs, we expect the tide to turn. For high-income taxable investors, we are expecting a municipal bond renaissance.” According to the report, muni bonds only offered yields of around 1% at the start of 2022, compared to yields that now exceed 3% before adjusting for tax benefits. Tax-equivalent yields are at 6% or even “meaningfully higher for residents in high-tax states who invest in corresponding state funds.” Vanguard said that this makes munis a “great value compared with other fixed income sectors and potentially even equities—especially with the odds of a recession increasing.” According to the Vanguard report, muni bonds also remain strong from a credit perspective, with attractive spreads over comparable U.S. Treasurys and corporate debt. In fact, municipal balance sheets are stronger now than they’ve been in two decades, leaving states well-prepared to navigate an economic slowdown.

Finsum:According to Vanguard, higher yields and solid balance sheets make muni bonds a highly attractive option for investors this year.

Last month, the Vanguard Group decided to drop out of the Net Zero Asset Managers initiative, whose members commit to making their investment portfolios emission-neutral by 2050. The decision by Vanguard emphasizes the notion that retail investors are less focused on ESG priorities than institutional investors. The fund giant said that 80% of its nearly $8 trillion in assets are in index funds, which typically attract retail investors. The rationale for the decision, according to Vanguard was that it was responding to the desire of its clients to provide "clarity" and make its independence clear. Vanguard's largest competitors, BlackRock and State Street rely more on institutional investors such as pension funds and foundations. Todd Rosenbluth, head of research at VettaFi told Reuters that “Institutional investors focus more on climate and other ESG priorities amid pressure to do so by clients, regulators and investment activists. BlackRock and State Street are appealing to an investment base that cares more about ESG." Both BlackRock and State Street have stuck with the Net Zero Asset Managers initiative. Rosenbluth also stated that “Many retail investors are also interested in matters like climate change, but prioritize them less in building retirement portfolios.” That matches a FINRA Investor Education Foundation study of retail investors last year that found only 9% of respondents held ESG investments.

Finsum:Many retail investors are interested in climate change, but prioritize them less in building portfolios, while institutional investors focus more on ESG amid pressure from clients, regulators, and activists.