Denis: Our focus on the long-term success of our investors truly stands out in the industry, whether through building diversified portfolios, rebalancing, or keeping costs as low as possible.

I came to Vanguard through our Accelerated Development Program. I majored in finance in college and knew I wanted to pursue an investment-related career. The development program gave me an opportunity to rotate across different areas of investment management—where I spent time on both our equity and fixed income desks as well as with our Institutional Investor Group. I found the equity markets really dynamic, and my index equity colleagues were incredible. The diversity of experiences, knowledge, and tenure, combined with the strong collegiality and team-based approach of EIG, made it an ideal place to begin my career.

Looking back, I believe the COVID-19 pandemic was a defining point in my career. No one had seen that level of volatility and uncertainty since the global financial crisis more than a decade earlier, but we were well positioned to weather this period. We drew upon the collective depth of our experiences and industry knowledge to ensure we continued to expertly manage portfolios on behalf of our investors. This period certainly tested our resolve, but I believe we’re all better portfolio managers and traders for having gone through it together. 

Denis: At the highest level, our portfolio management teams are all focused on doing what’s in the best interest of investors, which makes Vanguard an ideal environment to work in as we coordinate with the portfolio managers of the underlying funds.

When people think of the management of Vanguard TRFs, they are usually focused on cash flows, rebalancing, and how we handle day-to-day operations. But one of the most critical points about managing our TRFs is the important relationship between those of us in the multi-asset group and those who manage the underlying index funds in our TRFs.

Vanguard is able to provide investors with some of the broadest diversification through a simple fund-of-funds solution made up of just four or five underlying funds. Investors in our TRFs reap all the benefits of being shareholders of the underlying funds. At the fund-of-funds level, our multi-asset team also pays close attention to how the asset classes are performing relative to each other. All of these things dictate the rebalancing decisions we make to ensure we maintain our TRFs’ strategic asset allocation. 

Denis: Our multi-asset group sits within EIG. Our portfolio managers are also traders, which helps ensure cohesive and consistent management of our portfolios.

We’re constantly working with our global multi-asset counterparts to ensure we maintain global consistency with our strategies. We work closely with our Investment Strategy Group on portfolio construction, and with our Portfolio Review Department on understanding what our clients need and how we can continue to offer a leading target-date solution. Additionally, our risk management team monitors all of these efforts through a risk lens. Drawing on this collective expertise enables us to maintain a high conviction in the methodology and management of the TRFs.

Denis: There’s both an art and science to our portfolio management approach—that’s where our EIG crew members really shine. With an average tenure of 13 years, we’re not short of industry knowledge. We’re able to take this experience and apply it to our trading strategies. We also combine this practical experience with our technical capabilities to make data-driven decisions and develop new, risk-conscious trading strategies to ultimately help improve investors’ outcomes. 

Denis: When we think about how to manage our TRFs during times of market volatility, the one thing we always go back to is that our TRFs are designed to weather all sorts of market conditions over the long term.

The time horizon for many of the investors can be decades, so we don’t change allocations based on short-term market conditions. We believe this approach is the best way to produce long-term returns that help investors achieve their goals.

When markets are volatile, our approach to day-to-day fund management doesn’t change. We still need to stick to the strategic asset allocation and abide by our rebalancing policy. We’re also incredibly mindful of the careful balance we need to strike between transaction costs and adherence to the target allocation.

There are times when the market moves enough that we have to rebalance. And when those situations arise, we use what we call a threshold-based rebalancing policy. This risk-based approach to rebalancing allows our funds to move up or down with market movements to a certain point before rebalancing back closer to the target allocation. If an active weight reaches 200 basis points, we will initiate a rebalance. This enables us to limit unnecessary turnover and transaction costs when active weights are below our risk-based threshold.

Our research suggests this is a more effective rebalancing approach than letting the portfolio’s asset allocation free flow with the market for a period of time before rebalancing. The latter method, which is known as a calendar-based approach, can result in target-date portfolios straying much further away from their glidepath (particularly in volatile market environments) and lead to higher transaction costs for the fund. 

Denis: Vanguard TRFs reap the benefits of the underlying funds, which are great funds individually and as part of the fund-of-funds structure. The underlying funds are index funds and take a long-term investment approach. We’re not buying names in these funds to sell them the next day or a few days later.

Our TRFs are designed with the long-term shareholder’s interest in mind. The goal is to give them a low-cost product that is diversified and delivers consistent results over the long term. Any potential changes to these products go through a rigorous analysis because we want to make sure they would be worth it for the investor and produce a meaningful long-term outcome.

It all boils down to our goal of keeping the investor at the forefront of our decision-making and ensuring we give them the best chance for investment success. The strength of our TRF lineup is a testament to EIG’s commitment to investors and adherence to Vanguard’s mission. 

Note: This interview was edited for length and clarity.

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