Holly Cook: Today we’re talking about low-cost investing, and I’m joined by Vanguard’s Tom Rampulla. He is Managing Director of European operations.
Tom, thanks for joining me.
Tom Rampulla: Thanks so much. Great to be here.
Cook: So, Vanguard’s really got a name for itself as a low-cost provider. I mean, I know, for example, that the Vanguard FTSE 100 ETF is the lowest actually among EU-domiciled ones. How is it that Vanguard is able to keep costs quite so low?
Rampulla: First of all, we think cost is probably the most important thing you can focus on as an investor. High-cost investments just erode your ability to reach your investment goals. So it’s really, really important. The way we do it really stems from our unique corporate strategy. We’re owned by the investors in our funds. So we’re a bit of a collective or a mutual, if you will, and we operate very, very efficiently. We operate sort of for-profit, but we take those profits and distribute them back to shareholders through lowering of our costs. So essentially we operate at cost. We don’t have to take any profits and distribute it to shareholders or other owners. It goes back to the investors.
Cook: So that is quite a unique situation, and obviously, from the end-investor’s point of view keeping those costs low, as you say, is…
Rampulla: It’s critical.
Cook: Yeah, absolutely. But is there a deliberate strategy to try to be the lowest cost provider?
Rampulla: Yeah, absolutely. We want to be among the lowest cost providers. I think we’d be happy, if you look across our range, on average we’re the lowest cost and we really think we have a great competitive advantage to do that. Again, with that structure, all profits go back to investors. As we get larger, we get more efficient, our investors benefit from that and it’s great for them.
Cook: And so we’re talking about low costs, but are there other factors that the investors should be looking at when they’re selecting the passive products?
Rampulla: Sure. I mean, costs should be the first thing you should look at. Why would you ever invest in a high-cost passive provider? But I think you want to look at an organisation’s track record and how committed they are to the business. It’s been quite popular lately, so you’ll probably get a few non-committed organisations jump in and you want to make sure you’re getting in with someone that’s going to be there for the long term. And also how well they track the index. Actually that can be a cost as well. If they’re not very good at tracking the index, you can look at that as a cost as well.
Cook: So your cost – so it’s the low cost and also the tracking efficiency…
Rampulla: That’s right.
Cook: …And the reputation of the firm.
Rampulla: Commitment to the business, that’s right.
Cook: And so also my final question for you would be in terms of Vanguard’s plans in Europe and in the UK in particular. What are you looking at now? Are there areas that you’re looking to expand or new launches? What should investors be expecting?
Rampulla: Generally speaking, we want to continue to build out our core line-up. So we want to give investors the tools to build themselves very low-cost, broadly diversified portfolios to help them meet their investment goals. That will consist of mutual funds as well as ETFs. We recently launched within the past year a new range of European-based ETFs, and we’ll continue to build out those ranges. We also like some of the solutions-oriented products that are out there. We have some target-risk type funds that have been very, very successful in the UK, probably more to come in that regard, and perhaps low-cost active [funds] someday.
Cook: I said that was my final question, but let me just throw one more in there. It seems like investment products are getting more and more complex as people are looking for greater returns, particularly in a low-return environment. Do you think that that complexity is a good thing or is there a risk perhaps that people kind of are getting away from the more simple, sort of solid building blocks of an investment portfolio?
Rampulla: Yeah, we think simple is better. As we discussed previously, set good long-term goals, get a good strategic asset allocation, minimise costs, and remain disciplined. It’s a very simple way to have investment success. I think overly complex products are very difficult to understand. Investors don’t understand the risk they’re in. They can be overly pricey and very costly, and we think simple is better.
Cook: I think as a journalist, it’s even quite difficult to understand some of the products you’re writing about so simplicity, obviously, is very important for everyone. Great, well it’s lovely to have your time today. Thanks very much.
Rampulla: My pleasure.
