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Thursday, August 2, 2012

Vanguard Boots AllianceBernstein

News summary by MFWire's editors

It's true: Vanguard [profile] has said adieu to AllianceBernstein [profile] for good. Daniel Wiener, editor of the The Independent Adviser for Vanguard Investors, confirms as much in a news alert to his readers, writing, quote, "ALLIANCEBERNSTEIN IS OUT. PERIOD."

Consistent with a series of SEC filings Vanguard has indeed fired AllianceBernstein as PM for the Vanguard Global Equity Fund, Vanguard International Value Fund and Vanguard Windsor Fund.

Writes Wiener:
While Vanguard never breaks out the performance of individual managers on its multi-managed funds, I’ve long had access to data on AB’s performance and, frankly, it hasn’t been so hot. Add to that a series of management changes and continuing questions about the firm’s stability and it’s no wonder Vanguard finally took what is surely the right course of action.
An official press release from Vanguard confirmed the firms that will be replacing AllianceBernstein on the aforementioned funds.

Replacing AllianceBernstein on the Global Equity Fund are Baillie Gifford Overseas Ltd. [profile], which will take more control of the fund, while Acadian and Marathon remain on the fund in the same capacity as before.

ARGA Investment Management will be a new advisor for the International Value Fund. Lazard Asset Management, and Hansberger Global Investors remain on the fund.

Finally, Pzena Asset Management will be aded to the Windsor Fund, although Wellington Management Company will continue to manage the majority of the fund. Wiener, however, noted that "Pzena has a terrific long-term track record but its performance on the overseas U.S. Fundamental Value has been anything but stellar."

Company Press Release


VALLEY FORGE, PA, August 2, 2012—Vanguard today announced new investment advisory arrangements for Vanguard Windsor Fund, Vanguard International Value Fund, and Vanguard Global Equity Fund, under which AllianceBernstein L.P. will no longer serve as an advisor to the funds.

All three funds follow a multi-manager approach. The Board of Trustees for the funds added new advisors to manage portions of two funds and an existing advisor assumed greater responsibility for a portion of the third fund.

Windsor Fund

The $12.1 billion Windsor Fund added a new advisor, Pzena Investment Management, LLC, which now oversees approximately 28% of the fund’s assets. Wellington Management Company, LLP, which has served as an advisor since the fund’s inception in 1958, continues to manage the majority (approximately 71%) of the fund. The remainder of the fund’s assets is in cash investments.

Pzena employs a classic value investment approach, implementing their strategy through a combination of fundamental research and seeking the best value opportunities. Portfolio managers Richard Pzena, John Goetz, and Antonio DeSpirito, who have worked together since 1996, seek securities which they believe are undervalued relative to their long-term earnings power.

Vanguard has had a relationship with Pzena since 2005, when the firm was selected to manage Vanguard U.S. Fundamental Value Fund, a $17 million, Dublin-domiciled fund available only to non- U.S. investors. The $12.7 billion global investment management firm, based in New York, has also managed a portion of the $88 million Vanguard Emerging Markets Select Stock Fund since its launch in June 2011.

International Value Fund

ARGA Investment Management, LP, a new advisor to the $6.1 billion International Value Fund, now advises about 21% of the fund’s assets. Lazard Asset Management LLC continues to manage about 29% of the fund, Edinburgh Partners Limited approximately 28%, and Hansberger Global Investors, Inc. about 19%. Cash investments account for the remainder of the fund’s assets.

ARGA invests in undervalued businesses globally. Portfolio manager Rama Krishna and Steve Morrow use the dividend discount model and other valuation criteria as the framework to assess intrinsic value and conduct in-depth research to evaluate the quality of the business.

Mr. Krishna has more than 20 years of investment experience, most recently at Pzena, where he was a managing principal and portfolio manager. He founded ARGA in 2010. Mr. Morrow has more than 19 years of investment experience and has been with ARGA for two years. Global Equity Fund

An advisor to the $3.7 billion Global Equity Fund since 2008, Baillie Gifford Overseas Ltd. has assumed responsibility for an additional 13% of the fund, and now manages about 19% of the fund’s assets. Marathon Asset Management LLP continues to manage about 44% of the fund and Acadian Asset Management LLC about 33%. The remainder of the fund’s assets is in cash investments.

Baillie Gifford’s investment approach is based on long-term investments in well-researched and well-managed businesses that enjoy sustainable competitive advantages in their marketplaces. As they did prior to assuming greater responsibility for the fund, portfolio managers Charles Plowden, Spencer Adair, and Malcolm MacColl employ a fundamental “bottom up” approach to identify growth companies, screening them first for quality, then value.

An independent investment management partnership that has been managing institutional funds since 1908, Baillie Gifford has also managed a portion of the $781 million Vanguard Growth Equity Fund since 2008, and has advised portions of the $16.3 billion Vanguard International Growth Fund and the $1.6 billion International Portfolio of the Vanguard Variable Insurance Fund since 2003.

Multi-manager Structure

“These new advisory arrangements preserve the multi-manager structure of these funds, allowing shareholders to continue to benefit from the diversity of different investment approaches,” said Vanguard Chairman and CEO Bill McNabb. “We believe the advisor teams as now configured offer the best combination of investment approach, expertise, and resources to serve shareholders well going forward.”

Mr. McNabb added: “AllianceBernstein has been an advisor for Vanguard funds for more than 10 years, and we thank the firm and its investment professionals for their dedication, commitment, and service during that time.”

Vanguard’s approach to active management—including efforts to keep costs low and rigorous selection and oversight of active managers—seeks to offer investors an above-average chance at investing success, particularly over the long term, Mr. McNabb said. As of June 30, 2012, 75% of Vanguard’s actively managed funds outperformed the average returns of their Lipper peer group for the three-year period, 83% did so for the five-year period, and 88% did so for the ten-year period, according to data from Lipper Inc.

Percentage of Vanguard actively managed funds that outperformed their Lipper peer group average

All performance for periods ended June 30, 2012
1 year 3 years 5 years 10 years
Overall: Vanguard active funds 74% 75% 83% 88%
Vanguard bond funds 57% 54% 85% 84%
Vanguard balanced funds 83% 91% 95% 100%
Vanguard stock funds 83% 82% 73% 87%
For the one-year period, 9 of 10 Vanguard money market funds, 26 of 46 bond funds, 19 of 23 balanced funds, and 39 of 47 stock funds outperformed their Lipper averages.

For the three-year period, 10 of 10 Vanguard money market funds, 25 of 46 bond funds, 20 of 22 balanced funds, and 37 of 45 stock funds outperformed their Lipper averages.

For the five-year period, 10 of 10 Vanguard money market funds, 39 of 46 bond funds, 18 of 19 balanced funds, and 33 of 45 stock funds outperformed their Lipper averages.

For the ten-year period, 10 of 10 Vanguard money market funds, 37 of 44 bond funds, 9 of 9 balanced funds, and 33 of 38 stock funds outperformed their Lipper averages.

Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at vanguard.com/performance.

Source: Vanguard. Competitive fund performance figures derived from data provided by Lipper Inc. Only funds with a minimum history of 1, 3, 5, or 10 years, respectively, were included in this comparison. Results will vary for other time periods.

Expense ratios for the Investor Shares of the Windsor and International Value funds are each expected to increase by two basis points to 0.41%. The expense ratio for the Investor Shares of the Global Equity Fund is expected to increase by five basis points to 0.59%. These expense ratios will still be among the lowest in the industry, ranging from 81 to 91 basis points lower than each fund's Lipper peer group average (as of May 31, 2012). The Lipper peer group average expense ratio was 1.22% for Windsor, 1.27% for International Value, and 1.50% for Global Equity.

About Vanguard

Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages more than $1.83 trillion in U.S. mutual fund assets and has nearly $2.1 trillion in global assets. The firm offers more than 170 funds to U.S. investors and more than 70 additional funds in non-U.S. markets.

All asset figures as of June 30, 2012 (unless otherwise noted).  

Edited by: Irene Park

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