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Thursday, January 20, 2022

Vanguard Will Adopt a $178MM Fund

Reported by Neil Anderson, Managing Editor

The team at the Low-Cost Leviathan is preparing to adopt a British firm's $178-million, four-year-old ESG mutual fund and merge it into a newly created one.

Kate Fox
Baillie Gifford & Co.
Partner, Portfolio Manager
Yesterday, Tim Buckley, chairman and CEO of Vanguard [profile], revealed plans to adopt the Baillie Gifford Positive Change Equities Fund later this year, pending shareholder approval. The Vanguard folks also filed to launch the Vangaurd Baillie Gifford Global Positive Impact Stock Fund. They expect to debut the new fund in Q2 2022, then adopt the predecessor fund, then make the combined fund "available for public investment" in Q3.

"We'll continue to thoughtfully expand our ESG lineup, introducing funds and ETFs with enduring investment merit that reflect clients' needs and preferences," Buckley states, lauding the Baillie Gifford folks for their "significant expertise in fundamental equity research and impact analysis."

Vanguard will sponsor its new fund, while keeping Baillie Gifford [profile] on as the fund's investment advisor. Kate Fox, a partner and portfolio manager at Baillie Gifford, and Lee Qian, a portfolio manager at Baillie Gifford, have PMed the predecessor fund since inception at the end of 2017 and will PM the successor fund. The new fund will be a series of the Vanguard Valley Ford Funds trust. (The predecessor fund is a series of the Baillie Gifford Funds trust.)

Vanguard's successor fund will come with an expense ratio of 59 basis points, compared to 65 bps (after a fee waiver) for the predecessor fund's class K shares and 68 bps (also after a fee waiver) for the predecessor fund's institutional class shares.

"We hope that this fund adoption will broaden access to impact investing at a very competitive cost," states Andrew Telfer, joint senior partner at Baillie Gifford.

Jeff DeMaso, editor and research for the Independent Adviser for Vanguard Investors, writes that "Vanguard is going all-in in their partnership with Baillie Gifford," noting that the latter firm already subadvises six Vanguard funds. He also notes that it'll only be one of four Vanguard funds with a subadvisor's name in the fund name.

After expressing skepticism about ESG investing (especially around difficulties in defining ESG investing), DeMaso praises the launch and adoption as "a step in the right direction for want-to-be ESG investors."

"It's concentration, distinct style and clear philosophy, gives it the potential to outperform while allowing investors to decide if they agree with Baillie Gifford's approach to having a positive impact on the world," DeMaso concludes.

Vanguard will serve as the new fund's distributor, dividend-paying agent, and transfer agent, while Bank of New York Mellon will be its custodian. An independent accounting firm has not yet been named. (The predecessor fund's service providers include: Baillie Gifford Funds Services LLC (BGFS) as distributor and underwriter; BNY Mellon as administrator, custodian, and transfer agent; Cohen & Company, Ltd. as independent accounting firm; Ropes & Gray LLP as counsel; and Vedder Price P.C. as counsel to the independent trustees.) 

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