The Markets August 3, 2012

Vanguard Makes Advisory Changes to Three Funds

Vanguard announced new investment advisory arrangements for Vanguard Windsor Fund, Vanguard International Value Fund and Vanguard Global Equity Fund.
Reported by

All three funds follow a multimanager approach. The Board of Trustees for the funds added advisers to manage portions of two funds, and an existing adviser assumed greater responsibility for a portion of the third. AllianceBernstein LP will no longer serve as adviser to these funds.  

The $12.1 billion Windsor Fund added a new adviser, Pzena Investment Management LLC, which now oversees approximately 28% of the fund’s assets. Wellington Management Company LLP, which has served as an adviser 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.

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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 they believe are undervalued relative to long-term earnings.

ARGA Investment Management LP, a new adviser 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.

An adviser 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.

According to Bill McNabb, Vanguard’s chairman and chief executive, the new advisory arrangements preserve the funds’ multimanager structure, which allows shareholders to benefit from the diversity of different investment approaches

 

The Markets August 3, 2012

Pensions Have Record-Low Funding Level in July

The funded status of the typical U.S. corporate pension plan reached a record low in July.
Reported by

The funded status fell 2.9 percentage points, to 68.7%, the lowest level since BNY Mellon began tracking this information in December 2007, according to the BNY Mellon Pension Summary Report for July 2012.

The decrease was driven by a sharp spike in liabilities, which increased 5.5%, outpacing a 1.2% gain in assets at the typical corporate plan. The funded status of the typical plan has now fallen 3.7 percentage points during 2012.

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The rise in liabilities resulted from the 34 basis-point drop in the Aa corporate discount rate to 3.64%.  Plan liabilities are calculated using the yields of long-term investment grade bonds.  Lower yields on these bonds result in higher liabilities.

Assets in the typical plan benefited from rising equity markets, including a 1% gain in U.S. equity markets and a 1.1% increase in international developed markets.

“The continuing uncertainty regarding the Eurozone and lack of a coordinated response to the debt issues in Europe continue to send investors into bonds that are perceived to be a safe haven,” said Jeffrey B. Saef, managing director, BNY Mellon Asset Management, and head of the BNY Mellon Investment Strategy and Solutions Group, a BNY Mellon division. “As long this uncertainty remains, we expect to see very low interest rates, which will continue to pressure plan sponsors.”

Saef also noted that portfolios for plan sponsors have performed well, with assets rising more than 7% during the first seven months of the year for the typical U.S. corporate plan. However, he added, “Hitting a return target isn’t enough these days if you’re not keeping up with the growth in liabilities.”

 

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