Vanguard Analyst Pick Adds a New--but Familiar--Manager

A well-known manager has been added to the mix at  Vanguard International Explorer (VINEX). Vanguard announced Wednesday that the fund, an Analyst Pick in the  foreign small/mid growth category, will move to a multi-manager structure. A four-member team led by Simon H. Thomas of Wellington Management Company joins Matthew Dobbs of Schroder Investment Management (which has managed the fund since its 1996 inception) at the helm.

Thomas has been on Wellington's international small-cap equity team since he arrived at the firm in 2002. He's currently the team's leader and is joint manager of the firm's global small-cap approaches. He and his colleagues will use a bottom-up process to identify discounted stocks with long-term growth potential, aiming to exploit what they see as the inefficiencies of global markets and depending heavily on management visits to assess companies' strengths.

The other members of the team are Dan Maguire (who's based in Tokyo), Braxton Zink, and Antonio Trabocchi. The latter two (and Thomas) are based in Boston. The team has managed Hartford International Small Company  since early 2006. Over that period, the fund has slightly lagged the typical peer.

Vanguard's ties with Wellington run deep; the fund family noted in its announcement that the subadvisor manages almost $180 billion across 16 Vanguard mutual funds. That represents about a third of Wellington's $530 billion in assets under management. Their portfolio managers run the giant--$51 billion in assets-- Vanguard Wellington (VWELX) and  Vanguard GNMA (VFIIX) (another Analyst Pick) as well as portions of  Vanguard Windsor (VWNDX) and  Windsor II (VWNFX),  Vanguard Wellesley Income (VWINX), and  Vanguard Explorer (VEXPX), among others.

Vanguard International Explorer was called Schroder International Smaller Companies until Vanguard adopted it in July 2002. Dobbs has been the fund's named manager since 2000, working closely with a team of five regional portfolio managers who drive much of the stock-selection process. Like most at Schroder, they take a growth-at-a-reasonable price approach. Dobbs and his team prefer developed markets and limit emerging markets exposure, and focus on companies in the $2.5 billion to $3 billion range. Their approach is moderate--they particularly like firms with annual growth rates in the low teens with good dividend streams and reinvestment rates.

Since Dobbs came on board, the fund has amassed a strong track record versus rivals. Its 10-year return is 3.6%, a top-quartile showing versus the typical peer's 1.4% return over that period. The two teams' investment styles appear to be fairly complementary: At the end of March, the Hartford and Vanguard funds had very little holdings overlap.

The ultimate asset split between Wellington and Schroder is still a bit unclear, although Vanguard doesn't expect the management change will materially affect the fund. A Vanguard spokesperson said Wednesday that Wellington will initially manage a modest allocation from the fund's current cash position and will be directed a portion of new cash flow.