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Investing Specialists

Vanguard Not Rushing to Judge AXA Rosenberg

Family has no plans to fire the firm over its coding error but reserves the right to do so.

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Several institutional and retail investment firms have already made up their minds about AXA Rosenberg, the quant shop that last month revealed a coding glitch in the models it uses to build portfolios; the glitch was first discovered nearly a year ago. Vanguard, for whom AXA subadvises a little more than $1 billion, is not among them.

Consultants have urged clients to fire AXA Rosenberg. Pension funds in Los Angeles and Fresno, Calif., have taken the advice. Even  Charles Schwab (SCHW) last week decided to fold its four Laudus Rosenberg funds that AXA Rosenberg subadvises. I recently spoke with Dan Newhall, the head of Vanguard's portfolio review department, which evaluates, selects, and monitors the family's nearly 30 subadvisors, to get his read on the situation. Based on that conversation, it's clear that Vanguard is vigorously reviewing its relationship with AXA Rosenberg but not rushing to judgment. "Those who have already acted arguably have not gathered all of the information," Newhall said.

Vanguard has no immediate plans to replace AXA as a subadvisor on  Vanguard U.S. Value (VUVLX),  Vanguard Explorer (VEXPX), and  Vanguard Market Neutral (VMNFX), though that could change if a review under way by AXA turns up any more bad news, Newhall said. "We're going through a process right now of trying to understand the circumstances around this issue," he said.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.