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By Christine Benz and Dan Culloton | 07-05-2012 11:00 AM

Vanguard's Leaders and Laggards

Morningstar's Dan Culloton sizes up the fund firm's top and bottom performers year-to-date, discusses CIO Gus Sauter's impending retirement, and more.

Christine Benz: Hi, I'm Christine Benz for Morningstar.

Vanguard's chief investment officer Gus Sauter recently announced that he'd retiring from the firm at the end of this year.

Joining me to discuss this and other recent developments at Vanguard is Dan Culloton. He is associate director of fund analysis at Morningstar.

Dan, thank you so much for being here.

Dan Culloton: Pleasure to be here, Christine.

Benz: So Dan, this is big news, Sauter retiring. Let's talk about who is going to be replacing him in the CIO role.

Culloton: His replacement is Mortimer Tim Buckley, who has been head of variety of high profile roles at Vanguard, mostly on the management side. He currently runs their individual investor segment, which takes care of all their retail operations, brokerage things like that.

He has also in the past been chief technology officer there, and he was brought on more than 20 years ago as an assistant to Jack Bogle.

Benz: So, in contrast with Gus, less sort of hands-on in the investment management sphere.

Culloton: He hasn't got a record running a mutual fund, but for several years, he has been a member of their portfolio review group. Now this is the group of senior executives at Vanguard who assess and monitor all of their internal and external funds, both actively managed and passively managed. But particularly, they pay attention to the subadvised funds, which use outside sub-advisors to run their actively managed funds, and they monitor them and make sure that they are fulfilling the prospectus mandates and performing well and serving shareholders well.

Benz: So Dan, let's briefly discuss Sauter's legacy. He's been at the firm for 25 years, had a variety of different roles. Let's talk about his contribution to Vanguard.

Culloton: Well a shorthand way to put it is that, while Jack Bogle founded the index mutual fund, Gus Sauter really sort of made it what it is today. So he was brought on in 1987 when Vanguard had two mutual funds, the Vanguard 500 and the Total Bond Market Index. He built up their indexing operations from the very small kernel into the very large robust organization it is today. They are the largest mutual fund company in the world right now, and 58% of their assets are in index funds, and the Vanguard Total Stock Market Index is one of the biggest funds in the world. At one point, Vanguard 500 was one of the biggest funds in the world, with over $100 billion in assets, and it still has over $100 billion in assets.

Gus was, not through force of will or marketing, but through just shear competence in building up a very strong team of people who know how to track their indexes very closely and keep an eye on cost, and just by being very good at a very simple task, and being out there to promote indexing and talk about improving indexing strategies and to emphasize long-term investing and low-cost, which are the hallmarks of Vanguard.

Benz: Right. Dan, another thing we want to cover today is the firm announced that it would be closing the High-Yield Corporate Bond Fund. Let's talk about what's going there, and what Vanguard stated as the reasons for wanting to shut the door to new money on that fund.

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