Executive Summary: Every year, Vanguard reports how much each portfolio manager has invested in the funds they are responsible for. You can find that data for every Vanguard fund here. In this article, I focus on the Vanguard-employed portfolio managers. A handful are invested alongside shareholders, but there is plenty of room for improvement.
Being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which (they) watch over their own.
– Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776
When I analyze mutual funds (or, for that matter, public companies, hedge funds or investment advisers and their firms), one of my first questions is: Are the managers “eating their own cooking?”
In other words, are the managers putting their money where their mouths are by investing in the strategies they are responsible for? Are we in the boat together, or must I trust they are looking out for my best interests?
In July, I asked that question of Vanguard’s board of directors, which consists of 14 individuals, including Vanguard’s CEO, Salim Ramji, and CIO, Greg Davis. Now I’m asking it of the portfolio managers tasked with making the day-to-day investment decisions.
Whether a manager is invested alongside shareholders seems like a basic question, so you’re forgiven if you thought finding an answer would be easy. It is not.
Vanguard is only required to disclose manager ownership once a year for each fund—which it does. Unfortunately, the updates come in drips and drabs as prospectuses are renewed across a mix of fiscal year-ends.
The disclosures, which are buried in the legalese, are pretty vague. Manager member ownership is reported in seven categories: $0, $1–$10,000, $10,001–$50,000, $50,001–$100,000, $100,001–$500,000, $500,001–$1,000,000 and over $1 million.
Let me be clear. I find this level of disclosure to be terribly lacking. Leaders of public companies (think the CEO or CFO) are required to disclose how many shares of the company’s stock they own and when they are buying or selling shares. Why shouldn’t fund managers be held to the same standard?
Vanguard should take a leadership role in this. At the very least, Vanguard could make the information it is required to disclose more accessible.
But if Vanguard won’t do even that much, I will.
I have collected the data so you’ll know whether the paid stewards and managers of your investment dollars have a vested stake in a given fund’s success. You can find a detailed table showing manager ownership levels fund by fund here. (And the data on board ownership is here.)
Portfolio managers from PRIMECAP Management and Wellington Management stand out for investing heavily in their portfolios. Managers from most other sub-advisers could stand to do a lot better.
However, remember that managers who live overseas can’t invest in U.S. mutual funds. Other managers may, understandably, not want to invest in a multi-manager fund.
I don’t say this to excuse their lack of investment. Instead, the point is that while some managers may not be eating their Vanguard cooking, they may be eating their own cooking, just off a different plate. Again, this is where the required disclosure falls short.
But what about the 36 portfolio managers who are Vanguard employees? Do they invest in the funds they run?