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By Jason Kephart, CFA | 01-26-2016 12:00 AM

Diversifying Outside of the Box

In today's uncertain fixed-income and equity markets, a fund that offers noncorrelated exposure can add value to investors' portfolios, says Vanguard's John Ameriks.

Jason Kephart: Hi, I'm Jason Kephart, an alternative analyst at Morningstar, and I'm joined today with John Ameriks, head of the quantitative equity group at Vanguard. Vanguard Market Neutral (VMNIX), which that team runs, was named Morningstar's Alternative Fund Manager of the Year for 2016.

Thanks for joining us, John.

John Ameriks: Thank you very much. It's great to be here, and it's a real pleasure to have won the award this year.

Kephart: I think the first thing that people think of with Vanguard is probably anything but alternative.

Ameriks: I think you are right--it is a little bit unusual. I don't think, these days, we're quite as well known for the long history that the organization has managing active funds. And certainly, the idea of alternatives is a little something different, I think, in most minds.

Kephart: So, what does Vanguard see as the benefit of having an alternative investment like the Market Neutral Fund?

Ameriks: Well, as you know, we start with active management, and I'll repeat the fact that the founding principle behind The Vanguard Group, again, is focused on low cost. Our view is that, by lowering costs, we can help investors achieve their investment goals better--whether those are tracking the market or whether they are beating the market, in terms of attempting to meet an active goal.

The Market Neutral Fund takes our active process and strips away the benchmark. It really does give someone the cleanest exposure that they can get to the process that we use to choose stocks that we think are going to be better bets against those that are going to be worse bets.

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