undated photo provided by Vanguard shows Tim
Buckley, chief investment officer with the
mutual fund company. In January, Buckley was
named CIO of Vanguard, the largest mutual fund
company. He’s responsible for overseeing a
total $2 trillion that’s managed by
Vanguard’s stock and bond investment groups.
— Tim Buckley may be today's most influential fund
industry leader, measured by his impact on how
Americans' retirement funds are invested.
January, he became chief investment officer at
Vanguard, the largest mutual fund company ranked by
assets. Buckley reports to CEO William McNabb, but has
a bigger impact on investment policy. He oversees
about $2 trillion in Vanguard's stock, bond and
43, joined the Valley Forge, Pa.-based company in 1991
as assistant to Vanguard's chairman at the time, John
Bogle, the index mutual fund pioneer who founded the
company. Buckley led the Vanguard unit specializing in
products for individual investors before being
promoted this year. He's just the second CIO in
Vanguard's nearly four-decade history. His
predecessor, George "Gus" Sauter, became the
first CIO in 2003.
says he's open to adjusting the company's fund lineup
and services, but doesn't expect any changes that
might conflict with Vanguard's focus on low-cost
been thinking the Vanguard way for all my 22 years
here, and I espouse the same investment philosophy as
anyone else in a leadership position here,"
it's unlikely that Vanguard might wish to make any
radical changes, given the company's rapid growth. The
$2 trillion currently under management is double the
total four years ago. Vanguard's mutual funds and
exchange-traded funds attracted $140 billion in new
cash last year, a record for the company. Through
March of this year, net deposits total about $52
market has climbed to new heights during Buckley's
first three months as CIO. Although stocks are up 9
percent this year, the market has wavered between
small losses and gains the past three weeks as
investors question whether the rally is sustainable.
Meanwhile, bond yields remain near all-time lows.
offered his thoughts on the long-term outlook in an
interview this week. Here are excerpts:
Bond funds continue to attract cash, despite the
well-known risks of short-term losses when interest
rates eventually rise. How should investors manage
their bond portfolios in this environment?
When rates rise, they could go up quickly. We worry
about people suddenly saying, "OK, it's time to
get out of bonds, rates are up. I saw a short-term
loss in my bond portfolio, so I'm going into stocks,
or into cash." That behavior is rarely rewarded.
that you're investing in bonds for a reason: because
they often move opposite of where the stock market is
going. They help mute the volatility of stocks. You
should own bonds with a long-term approach. Set your
asset allocation and stick with it, and it will prove
to be successful over the long run.
What about stocks? The market climbed to a record high
last month, and lots of investors are getting back in.
What are the key things they should be thinking about?
Invest with a long time horizon and make sure you
understand your goals. Don't ask, "Should I buy
or sell?" but ask "What am I trying to
achieve in the market, and what needs am I trying to
meet?" Set your absolute goals and base
everything off that. Don't get into a mindset of,
"I want to outperform the other guy, or other
funds." I'm not saying you should never make
relative performance comparisons at some point. You do
want to evaluate performance, but your goals should be
Investors have taken money out of stock mutual funds
for the past six years in a row. But that trend may be
coming to an end, with cash being added this year. Do
you expect it to continue?
Investors are clearly coming off the sidelines,
whether you're looking at flows across the industry or
just at Vanguard. But you can't make a trend out of a
couple months. The good news is that people are
getting back into stocks again. If you're investing
for the long run, that's still where we believe the
growth potential is. We just hate to see the cases
where an investor is only now coming back into the
market, after staying out over the past five years.
You don't want to see people chase performance, and
investors have a bad habit of doing that. And the
recent flows would back that up.
Vanguard has long argued that many U.S. investors have
a home bias in their portfolios — that is, they're
not investing enough in foreign stocks relative to how
much they own in the U.S. Yet recently, U.S. stocks
have outperformed nearly all the foreign indexes. Does
that argument still make sense?
much as 30 to 40 percent of your stock portfolio could
or should be held internationally. At that level, you
can get the benefits of diversification. We don't tell
people, "Go international, because the returns
will be better." Instead, it's about diversifying
your stream of investment returns. The returns
generated by U.S. stocks won't be correlated 1-to-1
with foreign stocks. They will move differently.
if you've got more than 40 percent of your stock
portfolio in international stocks, the benefits of
diversification start to wane. It's important to
remember that investing in foreign stocks still costs
more than domestic investing. (For example, most
foreign stock funds charge higher expenses than
domestic stock funds.) Those added costs can outweigh
the benefits of going international. With that cost
trade-off, you have diminishing returns if you've got
more than 40 percent international.