It was 20 years ago that Vanguard opened its first office outside the US. Perhaps surprisingly, it wasn’t in Canada, say, or the UK, but on the other side of the world — in Melbourne, Australia. To mark the anniversary, TEBI spoke to Robin Bowerman, Vanguard Australia’s Head of Market Strategy & Communications. Here he gives his summary of what’s been achieved in that time, and looks ahead to the next 20 years.
Robin, thank you for your time. Australia was the first country outside the US that Vanguard worked in. Why Australia?
Vanguard Australia’s foundation story has two key elements. One was the strategic opportunity to reach Australian investors through superannuation, a fledgling industry that had tremendous growth potential. Strategically, that saw us start at the institutional end of the client spectrum and then build out Vanguard’s capability to advisers and individual investors over time.
The second link between Vanguard in Pennsylvania and Australia is the individual who was tasked with establishing the business here, the Australian Jeremy Duffield. Jeremy was a senior vice president at Vanguard, and after 16 years with the company he was ready to move home with his family. So it was a combination of serendipity and strategy.
Presumably the Vanguard approach was very new to Australians in 1996? What sort of response did you have at first?
In a market dominated by an active approach to investing, index investing was largely a foreign concept. As with the early days of the US business, introducing index investing in Australia was reliant on an extensive educational work – some might describe it as trailblazing. While indexing is widely accepted as a pillar of investment management now it was a major disruptor at the point it was introduced.
How has Vanguard Australia grown in the intervening 20 years? And what about its main rivals?
Vanguard has grown to become one of the leading fund managers in Australia, hitting the milestone of $100 billion in assets under management earlier this year.
We have strong strategic partnerships with large institutional clients and our intermediary business is supported by one of the strongest sales teams in the country. We also have a loyal group of retail investors, many of whom invest their self-managed super fund assets with Vanguard.
Clearly, Australia is still a long way behind the US in terms of the take-up of passive investing. Do you see that changing?
A combination of economic and market factors in recent years has led investors worldwide to become more focused on broad diversification, low investment costs and transparency — the key characteristics of index funds and ETFs. While the level of index investing in Australia is lower than that of the US it is definitely increasing.
According to Rainmaker data indexed funds represent 19% of total assets under management. Two years ago it was 17%.
The introduction of ETFs has added another avenue for investors to access index funds at low-cost, and as familiarity with ETFs increases we expect to see the adoption of index investing continue to rise.
Something that’s holding back the advance of passive investing in the UK is that the media is still largely supportive of active management. Is that the same in Australia?
The Australian market is dominated by active management – around 80% of all money is invested via active strategies. However, the media has become attuned to the evidence that the majority of active managers do not outperform after fees particularly when you take a long-term view.
So there is a healthy scepticism in the media, particularly around the high costs of asset management within our superannuation system.
We also see a real gap in the Australian market for low-cost active funds.
What are your aims as a company now? And where do you expect Vanguard Australia to be in another 20 years?
To mark our 20th anniversary we conducted some research to test how our long-standing investment principles have served investors over the past 20 years. Vanguard’s principles focus on the importance of setting goals, having balance in your portfolio, remaining disciplined and of course, keeping cost low.
The research applied these principles to some practical real-world scenarios and found that these fundamentals of our own investment philosophy that we have been sharing with investors for years are just as applicable today as they were 20 years ago.
It is safe to say that while we are always focused on innovation and delivering the best possible investment solutions, the client-centric nature of Vanguard, thanks to its mutual ownership structure, will continue to be our defining quality 20 years from now.
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Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
