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No Magical Fountain of Alpha for Vanguard

CIO-elect Tim Buckley says Vanguard will stick to diversification and simplification on his watch.

Dan Culloton, 10/29/2012

Tim Buckley, who takes over as Vanguard's chief investment officer when Gus Sauter retires at the end of this year, has never worked as a securities analyst or portfolio manager, but he has been a CIO before. From 2001 to 2006, he was Vanguard's chief information officer and managed the fund family's programmers, software, and hardware. How does that qualify Buckley to lead the investment operations of a nearly $2-trillion-in-assets firm? Morningstar analysts asked Buckley, who has run Vanguard's Retail Investor Group since 2006, this and other questions in a recent interview. Here's the edited transcript:  

Q: Do you consider the CIO job that you are taking over more of an investment-management job or a management job?

A: I think it's--the way Gus has defined it--a leadership job, and he has done a fantastic job of building an investment team of more than 300-strong here. My job is to keep this going.

We don't make big macro calls at Vanguard. So, the CIO role here is a leadership role, and it's one that Gus has defined and I hope to pick up where he left off.

Q: You've called Gus a good keeper and defender of the Vanguard philosophy. Can you define, in your own words, your philosophy?

A: I bet you guys could do it right off the bat, right? In our product philosophy we look at products and say, "Are these long-term? Do they belong in a long-term portfolio? Are they enduring concepts?" Not, "Well, this will work really well this year, but not three years from now." So, there is long-term and there is enduring and there is low cost.

There are a lot of options out there with a lot of different strategies. They are just really expensive. You know we believe that costs are something you have to keep low. In a portfolio they just consume returns. We also ask, "Can we be best-in-class in that? Is this a great diversifier? Does it help simplify investment process for somebody?" These are elements of our strategy that we look at and we hold true to. They help define what products we'll come out with.

Q: We like to see someone with a great deal of investment experience as the head of an investment organization. What makes you and Vanguard different?

Dan Culloton is an associate director of fund analysis for Morningstar and editor of Morningstar's Vanguard Fund Family Report, a monthly newsletter that offers independent, no-holds-barred guidance on the pros and cons of this dominant fund family. Click here for a free issue of the Vanguard Fund Family Report.
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