InvestmentsDec 31 2015

Vanguard explains dip in distribution

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Vanguard explains dip in distribution

Despite a slight downward shift in distribution last year, Vanguard’s managing director said equity and bond markets performed much as expected in 2015.

John James, who moved from the firm’s Australian business to lead its UK and European operations in March, said low interest rates and relatively full valuations had led to a slight fall in overall market distribution, and he believed the global outlook in 2016 would still be “frustratingly fragile”.

As predicted in Vanguard’s 2014 outlook, the past 12 months saw the US and UK economies deliver healthy growth, while China slowed down and Europe and Japan continued to struggle.

“We also predicted that global equity and bond returns were likely to be lower than they had been in the recent past,” Mr James said. “At Vanguard we don’t give point forecasts for markets; we prefer to think in terms of a range of probabilities, reflecting the uncertainties of investing in the real world.”

He pointed to the two big announcements on the regulatory front this year: the Financial Conduct Authority’s Asset Management Review and the Financial Advice Market Review, conducted in tandem with HM Treasury, both of which will help improve investors’ chances of success over the long term.

“The Asset Management Review is timely, because fees for asset management services still vary considerably in the UK.

“We’ve seen lots of price cuts in 2015 but, all too often, they’ve been initiated on selected share classes with relatively few investors. Meanwhile, the majority of investors are stuck in share classes with high fees,” continued Mr James.

“Too few investors know how much they’re paying, and even fewer appreciate how much those high fees affect their returns.

“As an industry we owe investors more honesty and transparency than that. The FCA’s focus on ensuring end investors get value for money will help level the playing field, increase competition, enable greater innovation and improve choice.”

Mr James said he is “similarly excited” about the FAMR, pointing out that the demographic profile of the UK, together with the ongoing shift towards defined contribution and greater pension freedom, means that demand for financial advice and guidance will continue to grow.

“We fully support efforts to measure the ‘advice gap’ for people that do not have significant wealth or income, and we’re interested in exploring how new technologies may help to provide further cost-effective, efficient and user-friendly advice services.”

This article was amended at the request of Vanguard to reflect that ‘distributions’ referred to overall market distributions, not Vanguard’s own.