Conceived in hell and born in strife is how the founder put it. And it worked. The result: a revolution democratising investments in financial markets. Talk about a legacy. And it is still playing out: US$9 out of every $10 invested in US mutual funds or exchange-traded funds (ETFs) lands in Vanguard’s coffers. Astounding. That was in February.
If you search for the company online, the headlines have it all. They read like an Olympic record-breaking frenzy.
Each one outdoing the last, sharing an ever increasing amount of money vested in the American investment management company, and how far behind it is leaving the competition.
Over and over again it goes: Vanguard sets record fund inflow.
To give you some context, at the start of the year the amount of money going to Vanguard was more than the money being put in the next 16 fund families combined.
Let us take a step back. What is Vanguard about? Why is it knocking the competition for six?
It invented index-tracking, and provides it at a very low cost. The lowest out there, in fact.
That is not all.
The way it is set up is so simple, it is scary. Everyone who invests in Vanguard funds owns a bit of the company. That’s because when you put money into a fund, you own shares in the said fund. In Vanguard’s case, the funds own the investment company. No one, other than shareholders in the funds, owns a stake in the investment company.
Again, you own a share in the investment company when you buy shares in one of Vanguard’s funds.
As a result, no third-party owners need to be paid anything, because they don’t exist. Have I mentioned this already? You, the investor, share the takings, after the costs of running the funds are paid. And so, because everyone is in it together, expenses are controlled and contained.
You’ll see this reflected in staff reviews posted on certain workplace related websites. Some of the less satisfied employees class the company as cheapskates. Makes sense, and it is good news if you’re investing with them.
On the plus side, time and again, the reviews rate the company as having a super work-life balance. In fact, many posting reviews say they are fine with lower pay, precisely because of the work-life balance on offer. Their priorities appear to be well-placed. Now, if those staff- members were to part-own the company, they’d be on a pretty good thing if you think about it.
Are there risks? There is always risk.
Things like legal costs. They’ve been sued for having fees that are too low. Yes, really. The concern isn’t that they’ll lose a case like this, but lose the fees they have to pay out to fight it.
Yes, there’s been bad press around the issue of investing passively. Concerns include who controls what, how to mitigate a slump in value if markets tank, and what the fallout could be from pumping too much money into what has, to date, been a very successful strategy. I suppose it gives rise to the question: is there such a thing as too passive? I’ll ponder that another time.
For now though, take comfort in that Warren Buffett, widely considered the most successful investor in history, doesn’t seem perturbed.
In fact, quite the opposite. He’s telling his heirs to put 90 per cent of what they inherit into something that – currently – only Vanguard really provides.
Here’s what he set out in his will a couple of years ago: “My advice to the trustee could not be more simple. Put 10 per cent of the cash in short-term government bonds and 90 per cent in a very low-cost S&P 500 index fund. I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, individuals – who employ high fee managers.”
He means Vanguard.
If it is good enough for him, he again extolled the virtues of the company, what it does and how it works, in his recent Berkshire Hathaway shareholder letter, is it good enough for you?
That is your decision to make. I will say this though: Vanguard rules the world of low-cost index investing.
If this sort of investment fits in with your strategy, forget about “follow the leader” – just join it. It pays to be boring and cheap.
Nima Abu Wardeh describes herself using three words: Person. Parent. Pupil. Each day she works out which one gets priority, sharing her journey on finding-nima.com
pf@thenational.ae
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Tips on buying property during a pandemic
Islay Robinson, group chief executive of mortgage broker Enness Global, offers his advice on buying property in today's market.
While many have been quick to call a market collapse, this simply isn’t what we’re seeing on the ground. Many pockets of the global property market, including London and the UAE, continue to be compelling locations to invest in real estate.
While an air of uncertainty remains, the outlook is far better than anyone could have predicted. However, it is still important to consider the wider threat posed by Covid-19 when buying bricks and mortar.
Anything with outside space, gardens and private entrances is a must and these property features will see your investment keep its value should the pandemic drag on. In contrast, flats and particularly high-rise developments are falling in popularity and investors should avoid them at all costs.
Attractive investment property can be hard to find amid strong demand and heightened buyer activity. When you do find one, be prepared to move hard and fast to secure it. If you have your finances in order, this shouldn’t be an issue.
Lenders continue to lend and rates remain at an all-time low, so utilise this. There is no point in tying up cash when you can keep this liquidity to maximise other opportunities.
Keep your head and, as always when investing, take the long-term view. External factors such as coronavirus or Brexit will present challenges in the short-term, but the long-term outlook remains strong.
Finally, keep an eye on your currency. Whenever currency fluctuations favour foreign buyers, you can bet that demand will increase, as they act to secure what is essentially a discounted property.
Company%20profile
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Classification of skills
A worker is categorised as skilled by the MOHRE based on nine levels given in the International Standard Classification of Occupations (ISCO) issued by the International Labour Organisation.
A skilled worker would be someone at a professional level (levels 1 – 5) which includes managers, professionals, technicians and associate professionals, clerical support workers, and service and sales workers.
The worker must also have an attested educational certificate higher than secondary or an equivalent certification, and earn a monthly salary of at least Dh4,000.
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The story in numbers
18
This is how many recognised sects Lebanon is home to, along with about four million citizens
450,000
More than this many Palestinian refugees are registered with UNRWA in Lebanon, with about 45 per cent of them living in the country’s 12 refugee camps
1.5 million
There are just under 1 million Syrian refugees registered with the UN, although the government puts the figure upwards of 1.5m
73
The percentage of stateless people in Lebanon, who are not of Palestinian origin, born to a Lebanese mother, according to a 2012-2013 study by human rights organisation Frontiers Ruwad Association
18,000
The number of marriages recorded between Lebanese women and foreigners between the years 1995 and 2008, according to a 2009 study backed by the UN Development Programme
77,400
The number of people believed to be affected by the current nationality law, according to the 2009 UN study
4,926
This is how many Lebanese-Palestinian households there were in Lebanon in 2016, according to a census by the Lebanese-Palestinian dialogue committee
More coverage from the Future Forum
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Visa changes give families fresh hope
Foreign workers can sponsor family members based solely on their income
Male residents employed in the UAE can sponsor immediate family members, such as wife and children, subject to conditions that include a minimum salary of Dh 4,000 or Dh 3,000 plus accommodation.
Attested original marriage certificate, birth certificate of the child, ejari or rental contract, labour contract, salary certificate must be submitted to the government authorised typing centre to complete the sponsorship process
In Abu Dhabi, a woman can sponsor her husband and children if she holds a residence permit stating she is an engineer, teacher, doctor, nurse or any profession related to the medical sector and her monthly salary is at least Dh 10,000 or Dh 8,000 plus accommodation.
In Dubai, if a woman is not employed in the above categories she can get approval to sponsor her family if her monthly salary is more than Dh 10,000 and with a special permission from the Department of Naturalization and Residency Dubai.
To sponsor parents, a worker should earn Dh20,000 or Dh19,000 a month, plus a two-bedroom accommodation
The 12
England
Arsenal, Chelsea, Liverpool, Manchester City, Manchester United, Tottenham Hotspur
Italy
AC Milan, Inter Milan, Juventus
Spain
Atletico Madrid, Barcelona, Real Madrid
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
MATCH INFO
Real Madrid 2
Vinicius Junior (71') Mariano (90 2')
Barcelona 0
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Desert Warrior
Starring: Anthony Mackie, Aiysha Hart, Ben Kingsley
Director: Rupert Wyatt
Rating: 3/5
