Expert insight
Barron’s podcast features Vanguard’s CIO
October 06, 2023
In an episode of Barron’s Live, Vanguard Chief Investment Officer Greg Davis discusses the Federal Reserve’s ongoing campaign to knock the pace of inflation down to 2%; the state of the stock, bond, and money markets, including the long-term outlook for stocks; and the opportunities and challenges that arise from trying to outperform the markets through active portfolio management.
Some highlights of Davis’s comments:
- On recent Fed guidance suggesting that policymakers are likely to pursue higher levels of interest rates and to keep them elevated for longer than many investors have been expecting: It’s “not that surprising,” despite “tremendous progress on the inflation front,” because rates of U.S. inflation remain well above the Fed’s 2% target. “We think the Fed is going to be pretty persistent in terms of trying to get to their target.” A reversal in Fed policy, toward lower rates, is unlikely to arrive before the “tail end of 2024.”
- On markets: With some money market funds offering yields of 5% or more, the money market has become “a significant force,” competing with stocks and bonds for investors’ capital. Yet the money market poses a “durability-of-yield” risk for investors—yields will decline almost immediately when the Fed cuts its target for short-term interest rates. Meanwhile, although most segments of the bond markets appear to be fairly priced, U.S. stocks face the headwind of higher interest rates and, according to Vanguard forecasts, are likely to return just about 5%, annualized, over the next decade.
- On actively managed investment portfolios: Vanguard believes it is possible to outperform the market averages—and it employs what it considers to be world-class investment advisory firms that seek to do just that—but most competing actively managed funds charge too much for their shareholders to have a realistic chance of earning long-term “alpha.” It’s critical for investors in actively managed portfolios to limit costs and to be patient during periods of poor performance.
Listen to Davis’s interview (35:11 podcast) at Barron's (a subscription may be required). You can also listen via Apple Podcasts, Spotify, or Amazon Music.
Related links:
- Bloomberg podcast: Considering the odds of a U.S. recession (44:10 podcast, issued July 2023)
- Bloomberg Intelligence podcast: Investing over speculating (37:10 podcast, issued April 2023)
- Making the case for indexing: A podcast conversation (31:59 podcast, issued February 2023)
Notes:
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