Outlook for Vanguard in 2024

Susan Dziubinski: Let’s talk a little bit about new fund launches for Vanguard in 2024. What might be in the hopper? Where might you see them? Again, complete speculation, but where do you think they might go next?

Daniel Sotiroff: It remains to be seen. It’s always a little bit of speculation, but I think fixed income is a big area. I think we touched on that before. That’s been a big area for the industry. It’s an area that I think has been overlooked in a lot of ways. There might be more value to be added there than there has been in the equity strategies. When we talked to Vanguard earlier this year, they said ETFs are definitely in the plans for their new fixed-income products, as we saw with the recent launches that are still pending. Along those lines, they did announce plans to launch an intermediate municipal-bond ETF. That’s going to be an index-tracking one. Then along the same lines, a California taxes and municipal-bond ETF. So, those are in the hopper for next year. So, clearly, they’re thinking along the fixed-income lines. We’ll see what comes out in terms of actively managed versus index-tracking. Both can be great offerings, I think, at the end of the day; Vanguard does both of them in a low-fee, broadly diversified format. So, that’s what I’m really watching for in terms of product launches.

Vanguard’s 2024 International Business Outlook

Dziubinski: Let’s talk a little bit about Vanguard’s international business. Vanguard hasn’t really been nearly as successful outside of the U.S. as it’s been here. Is there anything you’re going to be looking for on this front in 2024?

Sotiroff: Yeah, to put some context around that, they’re still managing hundreds of billions of dollars. It’s a massive business. And a lot of asset managers would love to have that asset base. But you’re right, compared to their U.S. business, it’s tiny in comparison. The things we’re really watching for are more from a business perspective. They’ve gotten into a few initiatives over the last couple of years, and they’ve backed out. This year, they left a German platform that they had created called Vanguard Invest. That was really aimed at the DIY retail investor, led with index funds. So, it was largely an index-fund-type platform, I believe. They launched that in February 2022 and then got out this year. So, it was a very short-lived project. Similarly, they entered China a few years ago, and then they exited China, I think late last year, and then they finally got out fully this year. They had a joint venture with the Ant Group that they ended. So, it raises some questions about how committed are they to some of these markets, I think, on one end. At the same time, maybe they saw something that wasn’t working very well there and decided, hey, we’re just going to get out and not throw bad money after good type of thing.

I’m not privy to all the details that Tim Buckley and company are talking about in the boardroom, but that’s something we’re definitely going to be watching on is how do those international projects go and what do they stick with and what do they leave by the wayside. That’s probably the biggest thing we’re watching is just how do they go about looking at new markets and new strategies.

Advice in 2024

Dziubinski: Lastly, Vanguard has made a significant push into advice here in the United States. Tell us about what the firm has done already and where you think things might be headed in 2024.

Sotiroff: The way I would frame it is they’ve got great funds. No surprise, they’ve had great funds for a really long time. And they have a great platform. They have this tiered investment platform, Digital Advisor, a $3,000 minimum, 0.15% annual fee, $50,000 minimum goes up to Personal Advisor. So, then you get a little bit more hands-on financial planning advice. The fee goes up to 0.30% per year for that. Then you go to Personal Advisor Select, which is the next tier up, and that’s if you have like a $0.5 million portfolio. Then you’re getting access to more holistic financial planning, hands-on type, actual human-in-the-loop type stuff to help you out. So, they have a great platform and everything. The underlying investments are great. I’ll reference Amy Arnott’s research in her robo-advisor report that came out earlier this year. The Digital Advisor platform came out as one of the best-in-class robo-advisors out there. So, that’s all great.

When we talked to Vanguard, they even admitted that really, it’s been the client experience side of things. It’s adding that personal touch to things and developing trust with clients and that sort of thing. That’s a real challenge, I think, especially when you’re trying to do financial planning on a large scale like this. At the same time, that’s a massive opportunity. If they can figure that out, and they’ve got this great fund base, the sky is the limit for them. It could really be the next big thing for them, I think, if they can figure it out. They’re going through some growing pains. There’s been some complaints out there from some clients that it isn’t working as well. But they’re clearly attentive to that. They realize it’s going on. They’re making some changes on the fly to adapt to it as they go. So, it’s going to be very interesting to see where that goes. I’m excited to see what they come up with because they’ve got a pretty compelling offering so far if they can figure out those little things around the edges to make it that much better.

Watch the full conversation between Susan Dziubinski and Daniel Sotiroff in “What’s in Store for Vanguard’s Funds, ETFs, and More in 2024.”