In 1976 Jack Bogle launched the world’s first index fund. He was sacked from his previous job for an “extremely unwise” merger and was an outcast. His fund ignored by both the investment industry and the public.
In an industry dominated by large fees, Vanguard’s fund is low-fee. In an investment world dominated by active management, Vanguard is passive.
They believe in long-term patience over short-term action.
The fund and Jack were viewed as fringe, and many thought they would fail.
Today The Vanguard Group is the second largest investment fund manager in the world. It manages more than US$8 trillion in assets and a quarter of all funds in the US.
Alternative assets are catching on
Just as Vanguard was once viewed as fringe, so it was with alternative assets. It is a wide class of assets and encompasses private equity, infrastructure funds, hedge funds, fixed income annuities and property.
For many investment funds, alternatives are in the too-hard basket. Each sub-class has different risk/return drivers. And they need a high level of diligence, insight, and active management expertise.
But they can deliver superior returns and a counter cyclic balance to other assets. In effect, they diversify your portfolio. And can improve the total risk-adjusted returns of your portfolio.
It’s why for long-term investment manager The Future Fund, 61.7% of their portfolio is in alternative asset classes. And have been a major driver of the Fund’s outsized performance over the past decade.
Core satellite – a winning play
An astute way to balance the benefits of both index and active managers is to combine them in a core satellite portfolio.
Index funds at the core and selected active managers, including alternative asset funds, as satellites.
The core delivers market performance at a lower cost. Active funds look to deliver a counter cyclical diversification and outsized performance.
Together your portfolio can enjoy the best of both worlds.
To find out more I will be hosting Vanguard in the next of our popular live Investment Manager Briefings.
This will be on Wednesday 8 February 2023 at 6.00pm.
Watch the replay here
Save the date, learn more about index funds, and quiz the person managing some of your money.