Vanguard to broaden access to Alternative Strategies Fund

August 1, 2019

 

In order to give more clients the opportunity to invest in alternative investments at a low cost, Vanguard announced today that financial advisor clients will be eligible to purchase shares of Vanguard Alternative Strategies Fund (VASFX) starting in early November 2019.

"Broadening access to the Alternative Strategies Fund will give more investors a low-cost, high-quality way to pursue a meaningful diversification benefit for their portfolios," said Matthew Brancato, head of Vanguard's Portfolio Review Department. "We believe alternative investments can play an important role in reducing volatility and improving investors' risk-adjusted returns."

The fund will remain closed to defined contribution plans, 529 plans, and health savings accounts.

The fund will also adopt a risk methodology that targets fixed volatility at the overall portfolio level. The risk methodology is expected to allow the portfolio manager to keep a consistent and sufficiently high level of volatility to increase the fund's potential to serve as a valuable diversifier, and to ensure that investors can have clearer expectations about how the fund will behave.

With the shift to fixed volatility at the portfolio level, the fund's investment objective and benchmark also will change. The fund's investment objective will be to seek to generate returns that have low correlation with the returns of the stock and bond markets and to seek capital appreciation.

The fund's benchmark index will be the FTSE 3-month US T-Bill Index, which will replace the FTSE 3-month US T-Bill Index + 4%. The new benchmark is expected to give investors a clearer expectation of how the Alternative Strategies Fund will behave. In addition to having low correlation to stock and bond returns, the fund is expected to provide positive absolute returns. It is also expected to have higher returns than cash over the long term, while experiencing more volatility than cash.

About the fund

The Alternative Strategies Fund employs six alternative investment strategies: long/short equity, event-driven, fixed income relative value, currencies, commodity-linked investments, and equity index futures. The advisor implements the strategies by investing in stocks, bonds, options, foreign currency exchange forward contracts, futures, swaps, and other types of investments.

The fund holds a distinctive position in the industry in large part because it costs significantly less than its peers on average.1 Its 0.66% expense ratio is not expected to increase as a result of the changes outlined here.2 Any increase in scale from expanded investor access to the fund will enable it to potentially lower costs in the future.

About the advisor

The Alternative Strategies Fund will continue to be managed by Vanguard Quantitative Equity Group (QEG).

QEG is Vanguard's internal active equity manager. The group started managing money in 1991. Today it applies risk-controlled, cost-effective processes to multiple strategies, including traditional alpha, factors, liquid alternatives, and managed payout.

The 35-member team of strategists, analysts, and portfolio managers includes 31 holders of M.B.A.s or comparable master's degrees, eight Ph.D. holders, 19 CFA charterholders, and a Certified Financial Risk Manager® professional. As of June 30, 2019, QEG had $43.5 billion in assets under management in 42 mandates.

QEG has managed alternative investments for Vanguard for over a decade. The Alternative Strategies Fund launched in 2009, with Vanguard as its sole investor, and had its public launch in 2015. QEG has managed a commodity strategy as part of Vanguard Managed Payout Fund since 2008. The commodity strategy was converted to Vanguard Commodity Strategy Fund, a publicly available fund, in June 2019. 

Vanguard's equity and fixed income investment teams are supported by a 67-member economic research team that informs our economic outlook. An 82-member risk-management team is fully integrated into our investment process under the oversight of our global chief risk officer.

1 By comparison, the asset-weighted average expense ratio for the industry's liquid alternatives category was approximately 1.49% as of June 30, 2019. Source: Lipper, a Thomson Reuters Company.

2 Data are as of the February 27, 2019, prospectus for Vanguard Alternative Strategies Fund. Excluding the effect of expenses attributable to borrowing and dividend expenses on short sales, the total annual operating expense ratio would be 0.35%.

Notes:

  • All asset figures are as of June 30, 2019, unless otherwise noted.
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
  • The investment strategies to be utilized by Vanguard Alternative Strategies Fund are complex and an investment in the fund may involve greater risk than investing in a traditional portfolio of stocks, bonds, and cash. There is no guarantee that the performance of Vanguard Alternative Strategies Fund will have low correlation with the returns of traditional capital markets. An investment in the fund could lose money over short, intermediate, or even long periods of time. Returns may vary substantially over time, and there is no guarantee that the fund will achieve its investment objective or that any of its investment strategies individually or collectively will succeed. The fund's strategies involve the use of leverage so its investment program may be considered speculative and is expected to involve considerable risks. The fund could lose money at any time and may underperform the markets in which it invests during any given period, regardless of whether such markets rise or fall.
  • London Stock Exchange Group companies include FTSE International Limited ("FTSE"), Frank Russell Company ("Russell"), MTS Next Limited ("MTS"), and FTSE TMX Global Debt Capital Markets Inc. ("FTSE TMX"). All rights reserved. "FTSE®", "Russell®", "MTS®", "FTSE TMX®" and "FTSE Russell" and other service marks and trademarks related to the FTSE or Russell indexes are trademarks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX and Russell under license. All information is provided for information purposes only. No responsibility or liability can be accepted by the London Stock Exchange Group companies nor its licensors for any errors or for any loss from use of this publication. Neither the London Stock Exchange Group companies nor any of its licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Indexes or the fitness or suitability of the Indexes for any particular purpose to which they might be put.
 

Our insights straight
to your inbox

Our insights straight to your inbox

Receive our latest Advisor's Digest
research
and commentary sent the
first business
morning every week.

A weekly digest of our latest research and commentary. Topics include the economy and markets, portfolio strategy, ETFs, and practice management.


Fund openings/closings, fund manager changes, dividend distributions, webinars, and other events you might want to know about.



Already registered? Log on to
manage your
email subscriptions.