Greg: Bonds absolutely should play a role for most investors because they will help moderate the level of risk in their portfolios. Bonds serve the key role of being a diversifier that can help reduce volatility. That function still holds up well in the current environment.

John: Not only are rates low in the current environment but so are spreads, or the extra reward you get from taking on more risk. That plays to Vanguard's fixed income active edge, where leveraging our low fees has given us the strategic flexibility to lower risk while still producing competitive returns for our clients. That's one of the things the team has been doing in recent months, as low fees allow us to be more patient when there isn't a lot of reward for taking on extra risk.

Sara: We think rates will remain relatively range-bound in the near term with some room to move gradually higher as the Federal Reserve tapers and hikes come into the investment horizon. Our base case scenario is that inflation will be transitory and will be tracking back down from where it is currently.

Clearly, we are experiencing strong growth and recovery in 2021. Monetary policy continues to be easy and firmly centered around inflation and employment outcomes. We work closely with our Investment Strategy Group on monitoring inflation and employment. We're in a situation with the reopening from the pandemic where there are some temporary factors that have boosted inflation. But we believe the Fed will look through these factors as transitory and not feel pressure to raise rates in the near term.

The Fed is also looking for full employment before it starts tightening. Payrolls were weak in April and soft in May, so we're keeping an eye on that. Again, this may be transitory. Fiscal subsidies and childcare constraints could be roadblocks preventing people from going back to work, and these factors may subside by the fall.

On balance, we believe that the Fed will not raise the policy rate until 2023 and that a gradual tapering of asset purchases will commence in early 2022. Risk assets have been supported by easy central bank policies, and valuations are very tight. For that reason, we have reduced credit overweights and increased dry powder that we can deploy at more attractive valuations.²

As John mentioned, our active edge enables that—Vanguard's low fees give us the breathing room to take risk down when investors aren't getting sufficiently rewarded.

Sara: I have an undergraduate degree in math from the University of North Carolina at Chapel Hill and an M.B.A. from the Wharton School of the University of Pennsylvania. In between, I qualified as an actuary. After receiving my M.B.A., I joined Goldman Sachs and was there for more than 20 years. I started as a trader in agency mortgage-backed securities, ultimately becoming a partner in the structured products group.

Being on the sell side at Goldman Sachs was a great experience.³ But as a passionate investor, I always had an interest in migrating to the buy side.⁴ I was attracted to Vanguard because of its reputation as a top firm. But I ended up taking the job because of the people, culture, and mission.

As global head of rates, I manage a team of more than 30 investment professionals across the globe. We oversee all active rate strategies in taxable credits and multisector funds. This includes a range of global government bonds, inflation-protected securities, and agency mortgage-backed securities, as well as our money markets business.

We also oversee foreign exchange and derivatives trading activities. These teams hedge currency risk for our active portfolios as well as our index funds and, in some cases, our equity funds. And finally, I am a member of the senior investment committee that produces the long-term investment outlook and oversees hiring and the governance of our investment process.

Sara: We have strong teams and winning business strategies across index, ETFs, money market funds, and our actively managed bond funds, and there are compelling growth opportunities in all those areas.

With respect to active management, it surprises investors sometimes when they hear how large an active player Vanguard is. We have more than $1 trillion in active fixed income assets under management.⁵ Our lineup is across money market funds as well as taxable and tax-exempt markets. We believe in an actively managed approach because it gives us the flexibility to respond to changing market conditions and opportunities for investors who seek to outperform. We've worked on honing our active edge, focusing on compounding sources of alpha and smart risk-taking that's strengthened by our modest fees. This puts us in a unique position to deliver value to active investors.

Greg: Succession planning is a key responsibility for senior management. We're trying to find individuals who have the capabilities to manage large teams and understand the technical aspects of the roles. Identifying individuals who can provide advice and perspective on the complexities associated with the fixed income world is critical.

The role of global head of fixed income covers everything from active management to money markets to indexing to stable value. It also involves sitting on our Global Investment Committee, where we make decisions on new product implementation and the structure of these products.

Having a leader who understands the various segments of the market but also drives results are key aspects of the role. We have seen these qualities in Sara, and they are key reasons why we selected her for this role.

We had several candidates for this opportunity whom we screened through a very detailed assessment of the competencies it would take to be successful. Sara was our number-one pick, and we're excited about her stepping into this role and seeing her continue with her success, which has been phenomenal in a very short period.

John: The role is ultimately about leading a team of nearly 200 investment professionals around the globe. As Greg pointed out, it's a very senior-level role with a tremendous amount of impact.

One of Sara's great strengths is her track record of stepping into new leadership roles, determining the formula for success, and leading teams to do it. That gives me great confidence in her. A hallmark of Vanguard is our care in succession planning, and Sara is a great example of this.

Greg: As we mentioned, we have a rigorous focus on developing talented potential leaders, so succession planning is constant. We've not announced a successor yet, but whoever we select will be exceptionally well qualified and experienced to lead the global rates team.

Sara: I would first say that I am honored to be part of such a great team. I am also excited to take on new responsibilities. Greg has said that in portfolio management, diversification is a well-known strategy for success, and the same concept can be applied in the context of an executive team. So I am delighted to be part of an organization that believes diverse groups make better decisions and that diversity among executives can strengthen a team's range of perspectives.

On a personal level, I hope to serve as a role model for young women who are interested in math and finance.

John: A few things come to mind. First and foremost has been our plan to build out FIG's capabilities by identifying, attracting, and developing talented fixed income leaders. This initiative was started by Greg when he led fixed income. It focused first on emerging markets, which we've built out very successfully, and high-yield investment capabilities, which is nearing completion. We've also invested in mortgage-backed securities capabilities and global rates, both of which have added value. Some talented people have joined our team, and we continue to expand. So that talent-building capability has been very important to us.

We've also enhanced our decision-making processes through strong risk controls. We leverage technology that helps decision-making across the index, active, money market, and credit research teams. A good example of this is our initiative to strengthen our alignment between our indexing and ETF strategies.

Greg: It's hard to quantify all John's contributions over his more than 30-year career at Vanguard. There are so many. When I joined Vanguard, John was leading our taxable money market and Treasury portfolios. He developed a strong track record as a portfolio manager in that space.

Later, he became one of the portfolio managers for our Treasury Inflation-Protected Securities fund. And ultimately, his contributions through his leadership were very evident across FIG and more broadly across investment management at Vanguard.

As we were starting to build out our risk management group, John led that effort. He has grown it from a team of one to now more than 100 individuals around the world. He was very influential in establishing and growing this important group, and now we have a world-class risk management organization. This has helped our funds perform better and control our risks.

In 2017, John was asked to lead FIG, and we couldn't think of a better leader to move the group forward given his experience, expertise in markets, and strong leadership capabilities. Over the past three years, more than 80% of our funds managed by FIG have outperformed their peer-group averages.⁶ So under John's leadership, the performance of FIG-managed funds has been superb. He is a great example of someone who is leaving the organization in a better place, and he's had a tremendously positive impact for our clients.

Greg: A big part of this is around talent, and you see this with Sara, who is a very talented investment professional and leader. Our main goal is to make sure we are strengthening the bench by investing in and developing talent while supplementing that with great, experienced hires from the outside. We believe this process is ultimately going to produce strong results.

We also want to ensure we have the latest and best technology in place. We're being innovative in terms of the strategies we're implementing based on research and quantitative capabilities. We're making sure we're creating an inclusive environment where everybody can truly succeed at what they do and produce the best results for our clients.

Sara: It's a continuation of what John and Greg started. We remain focused on delivering industry-leading investment results across index, ETF, money market, and active bond funds.

We will continue to build out capabilities. As John mentioned, we have increased our presence in emerging markets, high yield, and mortgages. Our Core Bond Fund just hit the five-year mark and has had a strong performance record. And we recently launched two new ESG-screened corporate bond ETFs—one in the U.S. and one in Europe. All these decisions are contributing to a more complete and stronger product lineup.

Talent will continue to be core to our success—we have diverse, high-performing teams of deep specialists and a collaborative culture that fuels our edge.

Finally, we are leaning heavily into cutting-edge technology to develop enhanced insights as well as increase efficiencies.