The name Vanguard is almost synonymous with index investing. But many overlook the fact that it quietly controls more than $1 trillion in actively managed assets. According to Tom Rampulla, head of Vanguard’s advisory business, they do so at their peril, because active investing today is more interesting and applicable than it has been in many years.
On Jan. 23, Rampulla will take the stage of the 10th annual Inside ETFs conference to deliver the opening address (tickets are still available; register here). He recently sat down with Inside ETFs CEO Matt Hougan to talk about why active will be a key focus of that speech … and why advisors should be thinking about “the new active” in the year ahead.
Matt Hougan, CEO, Inside ETFs: You’re giving the kickoff keynote at Inside ETFs 2017. What are you planning to discuss?
Tom Rampulla, Managing Director, Head of Intermediaries Business, Vanguard: I don’t want to go too much into the speech—we’ll save that for the event—but I will say this: I want to talk a bit about active. There are lots of people asking, “Is active dead?” We’re going to say, unequivocally, “No.”
What’s traditionally been high-cost active isn’t the place to be these days, but low-cost factor and so-called smart-beta approaches are changing the game. We’re going to show how, for even the best active managers today, most of the value they add is through factor exposure, not stock selection.
So we think “high-cost active” is dead, but there is a “low-cost active” that’s looking pretty interesting.
Hougan: Is active especially relevant today? What’s your take on the current market environment?
Rampulla: We’re likely facing a lower-return environment in the future. We actually think that’s good, in a way, for most advisors. Their value proposition is strongest in a low-return environment, where you can add tremendous value through financial planning, tax location, tax-loss harvesting, discipline, rebalancing and behavioral coaching.
A low-return, high-volatility environment means behavioral coaching is more important than ever, and of course, in a low-return environment, costs are more important than ever. When you’re talking returns of 15%, what’s 50 basis points? When you’re talking returns of 3%, 50 basis points is a big deal.
So we think active can play a key role in portfolios in this environment. It just has to be low-cost active, and one way to deliver on low-cost active is through so-called smart beta and factor exposure.