At the end of June, globally listed exchange traded products had nearly $17 trillion in combined assets under management. The bulk of that total is allocated to equity-based funds and that’s likely to remain the case, but as advisors know, exchange traded funds are excellent choices for fixed income exposure, too.
Fixed income ETFs have also served critical investor objectives, including removing the burden of individual securities selection, lower costs and increased access to previously hard-to-reach or illiquid corners of the bond market. Bond funds are also lynchpins in ETF model portfolios – vehicles that advisor are increasingly embracing.
Already an established leader when it comes to low-cost bond ETFs, Vanguard is also a force in the fixed income model portfolio space – a status the issuer cemented Monday with the debuts of two bond model portfolios. Those are the Vanguard Fixed Income Capital Preservation and Vanguard Fixed Income Active Total Return.
Those introductions come on the heels of the asset manager recently rolling out three new bond ETFs – the Vanguard Government Securities Active ETF (VGVT), Vanguard Total Treasury ETF (VTG) and the Vanguard Total Inflation-Protected Securities ETF (VTP).
Why It Matters
Vanguard is obviously a name that resonates with advisors and clients, so its ongoing push into fixed income model portfolios could prove potent over the long-term.
"Fixed income remains a cornerstone of a well-diversified portfolio, and with our newest launch of fixed income asset allocation models, we're giving financial advisors the tools to manage this essential component with precision and efficiency," said Amma Boateng, Managing Director of Financial Advisor Services at Vanguard. "Streamlining investment manager research, portfolio construction, and portfolio monitoring through model portfolios empowers advisors to spend more time strengthening client relationships and growing their business. "
Vanguard’s rising intersection with model portfolios is notable for another reason. It has the potential to allay advisor concerns regarding deployment of model portfolios. Some advisors think model portfolios are affronts to client sensibilities, but the opposite is true.
Model portfolios are ideal tools for tailoring the investment experience. That might surprise some advisors because one of the primary selling points of model portfolios is the benefit of more efficiencies afforded to the advisor.
Vanguard’s “fixed income expertise delivered through model portfolios frees up financial advisor time and enables them to focus on deepening client relationships, which research shows can lead to stronger client retention rates, client satisfaction, and referrals,” according to the company.
Examining the New Vanguard Fixed Income MPs
The pair of new Vanguard fixed income model portfolios could be applicable to a broad swath of clients because each serves a different objective. In the case of the Vanguard Fixed Income Capital Preservation model, the primary aims are preservation of capital, reduced volatility and the possibility of “modest returns” over time.
Though not overly aggressive by any stretch, the Vanguard Fixed Income Active Total Return model could be more appealing to young clients with the advantage of time and those that have higher levels of risk tolerance.
“Vanguard Fixed Income Active Total Return model combines higher quality global bonds with high-yield bonds for an actively managed fixed income portfolio that seeks to outperform a passive benchmark. Advisors whose clients are comfortable with greater volatility in pursuit of higher returns may find that Vanguard Fixed Income Active Total Return model helps them meet their clients' needs,” concludes the issuer.
