Speaker 1: Welcome to Inside Active, a podcast about active managers that
Speaker 1: goes beyond sound bites and headlines and looks deeper into
Speaker 1: their processes, challenges and philosophies and security selection. I'm David Cohne,
Speaker 1: i lead mutual fund and active research at Bloomberg Intelligence.
Speaker 1: For years, ETFs were almost synonymous with passive investing, but
Speaker 1: one of the biggest shifts happening in the markets right
Speaker 1: now is the rise of active, particularly in fixed income,
Speaker 1: where inefficiencies, liquidity differences, and security selection can matter a
Speaker 1: lot more. At the same time, firms like Vanguard, historically
Speaker 1: synonymous with low cost indexing, are leading further into active
Speaker 1: strategies within the ETF wrapper, reflecting both investor behavior and
Speaker 1: portfolio construction are evolving. Soday, we're going to unpack with
Speaker 1: driving that shift across product design, investor behavior, and how
Speaker 1: active bond ETFs are actually being used. Joining me today
Speaker 1: today as my guest is Jeff Johnson, head of fixed
Speaker 1: income product at Vanguard. Jeff, thanks for joining me. Thanks David,
Speaker 1: it's great to be here. So let's start with the
Speaker 1: big picture. Vanguard historically you know, known with indexing. What
Speaker 1: role to active fixed income ETFs play in Vanguard's broader
Speaker 1: product philosophy today.
Speaker 2: That's great, That's a great place to start. And I
Speaker 2: think what I would say is that the conversation should
Speaker 2: still really start, in our view with what is the
Speaker 2: role of bonds in an investor's portfolio and getting that
Speaker 2: allocation right, and you know, the appropriate allocation to bonds,
Speaker 2: of course, as we all know, really depends from investor
Speaker 2: to investor based on their time horizon, risk tolerance goals,
Speaker 2: and in a variety of other needs that are very
Speaker 2: specific to the investor. And from there, many investors, as
Speaker 2: we know, have a real preference for active investing in
Speaker 2: their portfolio, given the size of the fixed income market,
Speaker 2: the complexity of the fixed income market, the thousands of securities,
Speaker 2: the opportunities that present from the various inefficiencies that exist
Speaker 2: in the fixed income market. Now for more than forty years,
Speaker 2: Vanguard has been providing that exposure to investors in the
Speaker 2: form of actively managed mutual funds, which have very clearly
Speaker 2: served investors very very well over the years. More recently, though,
Speaker 2: in recent decades, investors have increasingly shown a preference for ETFs.
Speaker 2: We first saw that really with the growth of ETFs
Speaker 2: in indexing oriented fixed income strategies, but more recently that
Speaker 2: has come together in the form of a broader array
Speaker 2: of actively managed fixed income ETF. So, from the standpoint
Speaker 2: of our investment philosophy, we're most concerned with getting investors
Speaker 2: the right allocation to fixed income first and foremost, and
Speaker 2: then from there it really comes down to a choice
Speaker 2: and a preference between indexing air active and then the
Speaker 2: vehicle that is most suitable to that particular investor, whether
Speaker 2: it be you know, traditionally a mutual fund or increasingly
Speaker 2: going forward in ETF.
Speaker 1: So how do you decide, you know, if you're thinking
Speaker 1: from product design and product launches which think that excuse me,
Speaker 1: fixed income strategies belonging an ETF wrapper versus mutual fund.
Speaker 2: This is a timely question. As I said, our mutual
Speaker 2: fund lineup in fixed income goes back more than forty years,
Speaker 2: and we still very much believe in those funds and
Speaker 2: strategies they serve investors incredibly well. We have, on average
Speaker 2: a ten basis point weighted expense ratio across our life
Speaker 2: lineup that compares to forty six basis points for the industry.
Speaker 2: Eighty eight percent of our funds have outperformed their peer
Speaker 2: group averages on a ten year basis, so we feel
Speaker 2: really great about the lineup when we are thinking about
Speaker 2: new product development. Though increasingly over the last couple of years,
Speaker 2: and this is probably going to continue to be the
Speaker 2: case going forward, the real preference and the real demand
Speaker 2: for investors has been for an ETF. We saw that
Speaker 2: first with index products. We're seeing that increasingly now on
Speaker 2: the actively managed side. Actively managed ETFs pose certain unique
Speaker 2: challenges that we have to consider in the development and
Speaker 2: the design process that are somewhat different from the issues
Speaker 2: that we've faced over the years with mutual funds. One
Speaker 2: of them has to do with the transparency and actively
Speaker 2: managed fixed income ETF discloses its full portfolio holdings on
Speaker 2: a daily basis, and what that means to us is
Speaker 2: in an active strategy, it's really important to ensure that
Speaker 2: the same sort of in some cases proprietary strategies designed
Speaker 2: to generate alpha or outperformance can persist in an actively
Speaker 2: managed ETF despite providing daily holdings transparency and potentially signaling
Speaker 2: to the marketplace what kind of trading activity the portfolio
Speaker 2: management teams are up to. So that is one area
Speaker 2: in which as we think about the design of actively
Speaker 2: managed fixed income ETFs, at times there are certain modifications
Speaker 2: that we have to make to the portfolio or the
Speaker 2: process to accommodate that and still ensure that we're delivering
Speaker 2: top notch investment outcomes and the exposures that investors expect
Speaker 2: in a given strategy. Another aspect, and probably the second
Speaker 2: aspect that would that I would call out that is
Speaker 2: really important for us to think about in active fixed
Speaker 2: income ETFs is size and scalability and capacity. At Vanguard,
Speaker 2: we're very proud to serve tens of millions of investors,
Speaker 2: but with that comes the obligation to really think about
Speaker 2: how scalable are these strategies going to be. It's sort
Speaker 2: of been a good problem to have in the past
Speaker 2: that we've had to at times close certain funds because
Speaker 2: we need to preserve the manager's underlying ability to generate alpha,
Speaker 2: and as you and your listeners would know, sometimes large
Speaker 2: cash flows are large size can be an impediment to
Speaker 2: generating the same sort of ALP that you have in
Speaker 2: the past. So anytime we're thinking about an actively managed product,
Speaker 2: we do have to think about how scalable it will
Speaker 2: be and ensure that we're not going to run into
Speaker 2: near term capacity constraints.
Speaker 1: Yeah, definitely something I like to think about a lot,
Speaker 1: you know, looking at neutral funds versus ETFs. That's kind
Speaker 1: of like the big I think the more in the
Speaker 1: equity side, you know, where capacity is an issue, but
Speaker 1: your crag to fixed incum is also something to think about.
Speaker 1: And you know, Bakers launched several active fixed income ETFs
Speaker 1: in recent years. What gap and client portfolios were were
Speaker 1: you're trying to solve for and you know, and think
Speaker 1: about continuing to solve for going forward.
Speaker 2: Yeah, I think of this not so much as a
Speaker 2: gap in client portfolios as an opportunity and a trend
Speaker 2: that it was time for Vanguard to participate in. You know,
Speaker 2: our first actively managed fixed income ETF was launched in
Speaker 2: twenty twenty one, that was the Vanguard Ultra Short Bond ETF.
Speaker 2: And a few years went by before we began to
Speaker 2: rapidly expand our lineup. And I think, in fact, David,
Speaker 2: one of your colleagues at times, has liked to joke
Speaker 2: that launching product Banguard is sort of like observing a
Speaker 2: lunar eclipse because it happens so rarely. And I think
Speaker 2: over the last few years, it's been fair to push
Speaker 2: back on that a little bit and maybe say that
Speaker 2: it's maybe more akin to like the cycle of a
Speaker 2: full moon, because we've been a little bit more active
Speaker 2: launching active products. We've launched eight in the last two
Speaker 2: and a half years. And you know, that really came
Speaker 2: from a sort of a clear observance of a few
Speaker 2: trends coming together. One, we've long known that investors have
Speaker 2: a preference or a bias for being active in their
Speaker 2: fixed income portfolios. There's no doubt been a growth of indexing,
Speaker 2: but it is still an asset class where the abundant
Speaker 2: the opportunities are pretty abundant for very skilled active managers.
Speaker 2: The other trend that was pretty clear is the increasing
Speaker 2: preference for the ETFs as a vehicle in ETFs as
Speaker 2: the wrapper for the product. And as we saw these
Speaker 2: real trends converging and reflected on our deep expertise and
Speaker 2: capabilities managing ETFs, married with our more than forty years
Speaker 2: of history managing active fixed income very successfully, we felt
Speaker 2: it was really time to bring the Vanguard effect to
Speaker 2: active fixed income ETFs. And as we set out on
Speaker 2: that journey, really had the opportunity to kind of blank slate,
Speaker 2: look at the market and say, all right, what kind
Speaker 2: of products, what kind of strategies are investors most gravitating towards?
Speaker 2: How have their needs evolved? And we've really concentrated our
Speaker 2: efforts in two areas. On the taxable fixed income side,
Speaker 2: there are a handful of very core building blocks that
Speaker 2: investors are increasingly utilizing in their portfolios. When they show
Speaker 2: that preference for active management, you know, they like short
Speaker 2: duration strategies to be able to minimize the exposure to
Speaker 2: changes in interest rates. So we launched a short duration
Speaker 2: core product. Investors continue to look for core and core
Speaker 2: plus fixed income strategies for those that are looking for
Speaker 2: an active alternative to an aggregate type benchmark, or an
Speaker 2: active alternative with some higher yielding sectors like like would
Speaker 2: be in the case in a core plus. We felt
Speaker 2: it was really important to offer exposures active investors, exposures
Speaker 2: to active government securities. You know, there are times when
Speaker 2: investors are more interested in yield, but there's also times
Speaker 2: when it really pays off to have that high quality,
Speaker 2: very liquid fixed income ballast in the portfolio. And we're
Speaker 2: offering that now in the form of a government active ETF.
Speaker 2: And then for those investors who are looking to go
Speaker 2: farther out on the risk spectrum, high yield and multisector
Speaker 2: can be strategies that offer more of that income focus.
Speaker 2: And then the second key category that we've seen is
Speaker 2: on the muni side, where we know that investors are
Speaker 2: very interested in controlling their tax obligations, and Vanguard has
Speaker 2: long been a leading provider of municipal bond funds. So
Speaker 2: offering a short duration and a core muni strategy really,
Speaker 2: at least at this phase one of our product build out,
Speaker 2: really completes the steps that makes sense.
Speaker 1: You know, we're seeing really strong growth in active ETFs
Speaker 1: across all asset classes. Why is fixed income in particular,
Speaker 1: in your opinion, such fertile ground for active management in
Speaker 1: this wrapper.
Speaker 2: I think this gets back to something that we were
Speaker 2: describing earlier. The market is so broad. There are about
Speaker 2: fourteen thousand securities in the aggregate index. There are opportunities
Speaker 2: for skilled managers to uncover value with disciplined processing these.
Speaker 2: There certainly are still cases in the fixed income markets
Speaker 2: where bonds are less liquid. It's long been said that
Speaker 2: certain types of bonds trade by appointment only that that
Speaker 2: is still the case despite you know what's been you know,
Speaker 2: phenomenal growth in terms of electronic trading and optimization and
Speaker 2: automization in fixed income markets. Another factor that we can't
Speaker 2: ignore here, though, is that ETFs is a relatively new
Speaker 2: technology still. You know, I think for some investors, we're
Speaker 2: looking for ETFs to prove that they could withstand a crisis,
Speaker 2: for ETFs to prove that they could really weather a storm,
Speaker 2: and they really did so with flying colors in twenty
Speaker 2: twenty again in twenty twenty two, when we saw significant
Speaker 2: amounts of market volatility in both market environments. I think
Speaker 2: it really gave investors a lot of confidence that even
Speaker 2: though this is a vehicle where certain of underlying securities
Speaker 2: can sometimes be less liquid, the liquidity of the overall
Speaker 2: wrapper has proven to be extremely effective. So I think
Speaker 2: that's given investors a lot of confidence and fueled substantial
Speaker 2: amounts of growth for fixed income ETFs.
Speaker 1: Okay, do you think active bond ETFs are gaining share
Speaker 1: because of performance, transparency, tax efficiency, or advisor adoption or
Speaker 1: some combination of the previous ones.
Speaker 2: Well, David, I think the answer is all of the above.
Speaker 2: I think investors are are increasingly adopting active fixeding come
Speaker 2: ETFs because they appreciate the transparency, They appreciate the liquidity,
Speaker 2: they appreciate the increasing array of choice that they have
Speaker 2: in terms of product design and offerings. I think, you know,
Speaker 2: while active ETFs, you know, still carry a slightly higher
Speaker 2: expense ratio than index ETFs, buy and large active ETFs
Speaker 2: have come to the market at a at a bit
Speaker 2: more of an attractive price point than actively managed funds.
Speaker 2: More and more investors are really appreciating, you know, what
Speaker 2: Vanguard has long espoused in terms of you really get
Speaker 2: what you don't pay for when it comes to investing in.
Speaker 2: The lower expense ratio means that you get to keep
Speaker 2: more of that return for yourself. The flexibility and the
Speaker 2: liquidity again, those are just all features that investors are
Speaker 2: increasingly gravitating towards. And we really don't see that slowing
Speaker 2: down anytime soon.
Speaker 1: So if we think from five years from now, what
Speaker 1: percentage of Vanguard's fixed income ETF assets do you think
Speaker 1: will be active? Oh?
Speaker 2: Man, I would have a hard time putting a number
Speaker 2: on that figure. I think, you know, when we look
Speaker 2: though at what we saw in twenty twenty five, that's
Speaker 2: probably fairly indicative of where the industry is headed. There
Speaker 2: were about six hundred billion dollars in flows into fixed
Speaker 2: income in twenty twenty five, and that was pretty evenly
Speaker 2: split between index and active, but roughly seventy percent of
Speaker 2: the flows were into ETFs, So it is increasingly the
Speaker 2: vehicle of choice. So I would expect our share of
Speaker 2: ETFs as in terms of vanguards overall fixing umbiga business
Speaker 2: to continue to climb.
Speaker 1: Okay, And you know, if we think about right now
Speaker 1: fixed income, right now, where do you where are you
Speaker 1: seeing cash flow going in terms of the fixed income
Speaker 1: market ultra short core munis.
Speaker 2: There have been some important shifts here over the last
Speaker 2: few years. I think kind of have to start the
Speaker 2: conversation in some ways with what happened in twenty twenty
Speaker 2: two and twenty twenty three. Investors were very much you know,
Speaker 2: I think, startled by rapid moves and interest rates inflation,
Speaker 2: and they saw declines on bond market benchmarks that they
Speaker 2: weren't a customed to seeing. It had been you know,
Speaker 2: decades since they had seen those sorts of losses in
Speaker 2: fixed income. The good news there was by and large
Speaker 2: and vanguard investors were very well behaved. I think we've
Speaker 2: all always done a pretty good job of attracting investors
Speaker 2: who buy into our investment philosophy, our investment principles around
Speaker 2: you know, having clear goals, being balanced, being disciplined, focusing
Speaker 2: on low costs. So they took the volatility in stride.
Speaker 2: That all said, I think we saw a lot of
Speaker 2: the same trends that the rest of the industry saw,
Speaker 2: which was investors favoring shorter duration strategies, a lot of
Speaker 2: cash oriented strategies in recent years, and this was definitely
Speaker 2: the case in twenty twenty five, and it persists. Investors
Speaker 2: have been creeping out the curve and they've been looking
Speaker 2: to take on more risk and generate more income and
Speaker 2: yield in their portfolios, and the opportunity has really been
Speaker 2: ripe for that. In the active fixed income category, a
Speaker 2: lot of demand for core, core, plus and multi sector
Speaker 2: type strategies. And some of that speaks to the real
Speaker 2: appreciation that investors seem to have in active fixed income
Speaker 2: for intrusting very talented, skilled managers with the flexibility to
Speaker 2: move across sectors and identify value where their teams see
Speaker 2: the greatest amount of opportunity, and I would contrast that
Speaker 2: somewhat with what we see in index fixed income flows,
Speaker 2: which is probably more broad based demand and in some
Speaker 2: cases investors looking for indices to target more narrow exposures
Speaker 2: and get their beta exposure that way.
Speaker 1: So you think, you know things have changed, is the
Speaker 1: rate shock of twenty twenty two, and you're seeing investors
Speaker 1: extending duration again, we.
Speaker 2: Are seeing that, we're seeing them extend duration. We're seeing
Speaker 2: them look to you know, corporate and higher US yielding
Speaker 2: sectors to pick up yield. You know, I would I
Speaker 2: would remind them that the market environment is still one
Speaker 2: that is characterized by a great deal of uncertainty. Uh.
Speaker 2: You know, there's certainly uncertainty from a geopolitical standpoint. We're
Speaker 2: going to be going through a transition of leadership at
Speaker 2: the Federal Reserve. You know, inflation is still very much
Speaker 2: on people's minds. Be our word has crept in more
Speaker 2: recently as as you know, tensions in the Middle East
Speaker 2: have have escalated. So, you know, while we still see
Speaker 2: attractive opportunities in in core plus and higher yield type sectors,
Speaker 2: but still remind investors that government bonds, you know, inflation
Speaker 2: linked bonds can play a real role in their portfolio
Speaker 2: from a diversification standpoint, and can come in real handy
Speaker 2: if we do see periods of increased volatility.
Speaker 1: What role do you think active bond ETFs are playing
Speaker 1: in model portfolios today compared to I don't know, like
Speaker 1: three years ago.
Speaker 2: Yeah, model model portfolios are UH, you know, very much
Speaker 2: a growth engine, particularly in the financial advisor space. UH
Speaker 2: and and models have been a driving force behind the
Speaker 2: adoption of fixed income indexing ETFs, in part because a
Speaker 2: lot of advisors are looking for very specific exposures UH
Speaker 2: to UH sectors of the fixed income market, whether it's
Speaker 2: short duration, long duration, corporate treasury, mortgages, high yield. So,
Speaker 2: you know, indexed et s within model portfolios have been
Speaker 2: a very effective tool for advisors to be active with
Speaker 2: their acid allocation, but sometimes deploy those those views in
Speaker 2: a passive way through a through an indexed vehicle. What
Speaker 2: we're seeing on the on the active et F side, though,
Speaker 2: are are UH the ability for advisors to build model
Speaker 2: portfolios that capture sort of the breadth of a team's
Speaker 2: best ideas in an active ETF. So we see, you know,
Speaker 2: real growth for strategies in particular like core bond or
Speaker 2: coreplus bond active ETFs, which tend to be a very
Speaker 2: strategic and core element of ETF models.
Speaker 1: If we go beyond model portfolios and think of advisors
Speaker 1: that are doing, you know, selection on their own, are
Speaker 1: you seeing them use active bond ETFs differently than index
Speaker 1: bond ETFs.
Speaker 2: There are some nuanced differences here, And as we've kind
Speaker 2: of talked about a little bit already or alluded to,
Speaker 2: I think it's long been the case that investors have
Speaker 2: a bias in fixed income towards being active because of
Speaker 2: the opportunities and the inefficiencies, and the breadth and complexity
Speaker 2: of the market. And it was only just in twenty
Speaker 2: twenty five that index flows were about on par with
Speaker 2: with active flows across the intry. For twenty five years,
Speaker 2: I've been in and around fixed income markets, spoken to
Speaker 2: a lot of investors, spoken to a lot of clients.
Speaker 2: I haven't met too many fixed income investors who are
Speaker 2: purely passive. Most fixed income investors are active at a
Speaker 2: minimum when it comes to setting the acid allocation. They're
Speaker 2: thinking about what are their unique goals, what's their time horizon,
Speaker 2: How important is liquidity in their portfolio. How comfortable are
Speaker 2: they going down the credit quality spectrum in picking up
Speaker 2: additional yield? Our taxes important to them are not. These
Speaker 2: are all very very active decisions that a fixed income
Speaker 2: acid allocator must weight make when building their portfolio. And
Speaker 2: the great news for them that's emerged over the last
Speaker 2: ten years or so is that they have an incredible
Speaker 2: amount of choice now if they want to be very
Speaker 2: active with that decision making. From an acid out location standpoint,
Speaker 2: they have an abundance of tools that allow them to
Speaker 2: position a portfolio and deploy their views actively but potentially
Speaker 2: using underlying index vehicles that track those benchmarks that reflect
Speaker 2: their active points of view. In other cases, we continue
Speaker 2: to see fixed income investors looking to active managers to
Speaker 2: scan the universe and look for the best opportunities capitalize
Speaker 2: on the value that's available, and increasingly what we're seeing
Speaker 2: is that they're showing a preference in active vehicles towards
Speaker 2: the broader, more flexible fixed income strategies that give the
Speaker 2: managers the latitude to move across investment grade or high
Speaker 2: yield or emerging markets or in some cases currencies, maybe mortgages,
Speaker 2: securit tights securitize sectors to find the best value wherever
Speaker 2: it exists at that point in time.
Speaker 1: So I kind of want to go a little deeper.
Speaker 1: You know, yields are obviously meaningful higher than they were.
Speaker 1: I don't like a decade ago. Do you think the
Speaker 1: conversations changed about you know, taking credit risk for you know,
Speaker 1: whether it's advisors or individual investors.
Speaker 2: Well, you're right, yields. Yields are higher, and higher yields
Speaker 2: have changed the conversation a little bit that we're able
Speaker 2: to have with investors. You know, it wasn't too long
Speaker 2: ago that investors were you know, pretty you know, pretty
Speaker 2: bothered by the very low yield environment. There wasn't a
Speaker 2: lot of income available that has has no doubt changed.
Speaker 2: It's changed so much, in fact, that Vanguard's own longer
Speaker 2: term economic outlook has you know, fairly comparable expected returns
Speaker 2: between stocks and bonds. This is an environment where you know,
Speaker 2: we think investors at least need to be thinking about
Speaker 2: a sixty forty portfolio, if not forty sixty. And that's
Speaker 2: especially the case in the market environment like we have today,
Speaker 2: when they're is you know a great deal of uncertainty
Speaker 2: and we've seen increases in volatility. Some investors are still
Speaker 2: nervous about what could happen if rates rise or if
Speaker 2: you do get in inflation shock. But the good news
Speaker 2: is is that when you have a core strategy that's
Speaker 2: yielding upwards of four percent, you do have a built
Speaker 2: in yield cushion, so that if yields do go up
Speaker 2: from here, the good news is that you're going to
Speaker 2: be earning higher yields from here. The other good news
Speaker 2: is that you know that higher yield that you're starting
Speaker 2: out with provides a little bit of a buffer from
Speaker 2: any sort of capital losses that take place in the
Speaker 2: shorter term.
Speaker 1: So the fixedick and ETF ecosystem has evolved pretty rapidly.
Speaker 1: How do you think about liquidity and active bond ETF,
Speaker 1: especially in less liquid sectors.
Speaker 2: You know, really, we think about it very similarly as
Speaker 2: we do thinking about liquidity in are actively managed fixed
Speaker 2: income mutual funds. These are all broadly diversified strategies. We
Speaker 2: have a liquidity framework and a toolkit for all of
Speaker 2: our active strategies. We're very disciplined about maintaining dry powder
Speaker 2: in these portfolios to help ensure that the managers always
Speaker 2: have the flexibility to take advantage of opportunities when the
Speaker 2: market presents them. I think the experience that Vanguard has
Speaker 2: going back decades managing ETFs on the index side has
Speaker 2: allowed us to build out years and years of technology
Speaker 2: and expertise and experience through different cycles managing ETFs, developing
Speaker 2: that ecosystem, developing a capital markets ecosystem. I think this
Speaker 2: combination of our active history, our index history, and our
Speaker 2: ETF history kind of provides a unique combination and value
Speaker 2: proposition to investors looking for kind of the best of
Speaker 2: all of those things in active fixed income ETFs.
Speaker 1: Okay, and what differentiates Vanguard's approach to active fixed income
Speaker 1: ETFs from peers who may want to emphasize things like
Speaker 1: higher yield or more tactical positioning.
Speaker 2: Sure, uh, you know, for for forty years, For more
Speaker 2: than forty years, Vanguard has been managing active fixed income
Speaker 2: you know, according to you know, a few key principles.
Speaker 2: Number one, it really starts with having a deep bench
Speaker 2: of experts with more than two and a half trillion
Speaker 2: dollars in fixed income assets under management and more than
Speaker 2: two hundred fixed income investment professionals globally. You know, there's
Speaker 2: just no question that you need a deep and experienced
Speaker 2: and talented team uh TO to to manage this market.
Speaker 2: Another component of our approach that we're proud of and
Speaker 2: that it's differentiated in the marketplace is that it's very
Speaker 2: much a team oriented approach. You won't hear us talk
Speaker 2: a lot about star portfolio managers. Doesn't mean that we
Speaker 2: don't have stars on the team. I think we think
Speaker 2: of all of our pms as being all stars and
Speaker 2: a team of stars. But this team based approach, this
Speaker 2: highly collaborative approach, you know, really allows us to share
Speaker 2: the best insights and the best ideas across all of
Speaker 2: our portfolios. You know. I think a third aspect of
Speaker 2: the strategy is really just the consistency and having a
Speaker 2: repeatable and durable process. And what's most important there is
Speaker 2: focusing on the most repeatable sources of alpha generation, and
Speaker 2: for us, that really starts with security selection being repeatable
Speaker 2: and reliable and durable through different market cycles more so
Speaker 2: than timing rates increasing or decreasing the duration, so that
Speaker 2: allows us to have very consistent investment outcomes. And then finally,
Speaker 2: I think we couldn't be talking about the Vanguard offer
Speaker 2: without the cost advantage. Our low costs combined with the
Speaker 2: repeatable process and the deep and talented team means that
Speaker 2: investors get to keep more of what the market is
Speaker 2: providing them. And that's just such an important dynamic and
Speaker 2: fixed income where in general, over time, you're talking about
Speaker 2: an asset class that's going to have a lower expected
Speaker 2: return than others like equities traditionally or maybe even private
Speaker 2: investments for those investors who are going to incorporate those
Speaker 2: in their portfolios. So being able to keep more of
Speaker 2: what they earn has been an important engine behind eighty
Speaker 2: eight percent of Vanguard's fixed income funds outperforming their peer
Speaker 2: averages over ten year periods of time.
Speaker 1: Well, it certainly seems like active fixing of metfs is
Speaker 1: going to be a big growth area for your firm,
Speaker 1: and you know, I'm looking forward to seeing what's next.
Speaker 1: But unfortunately we need to end here. But this was great, Jeff,
Speaker 1: Thanks thanks again for joining me anytime. Thanks David, all
Speaker 1: was a pleasure. I also want to thank our listeners.
Speaker 1: If you liked the episode, please share, subscribe, and leave
Speaker 1: a review. And if you'd like to see more of
Speaker 1: our research on the terminal, go to bifund go for
Speaker 1: fund and Active Research until our next episode. This is
Speaker 1: David Comb inside Active