Vanguard's CEO Shares His Recommendations on Using Active ETFs in your Portfolio

In spite of Vanguard's success as a provider of low-cost, passive index funds and ETFs, active management still has a role to play, the CEO said.

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At the Exchange ETF Conference in Miami, Vanguard CEO Tim Buckley said the company has about 20% of its assets invested in active strategies, down from about 90% when he started at Vanguard more than three decades ago.

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But there is no doubt that the active side of the business will continue to exist. “There is no doubt that action is the way to go. It is our firm belief that low-cost activities are the best. Nevertheless, it is now part of a portfolio that has changed from the past," Buckley said.

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The index is at the heart of most clients' investment strategies. I believe that if you don't have an appetite for active risk, this will play much more on the sidelines," he said.

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In Buckley's view, active strategies are more likely to create a "better complement to the index portfolio" that would still remain a major part of an investor's nest egg because they have a higher risk budget or a larger standard deviation than index-tracking funds.

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Vanguard, a Valley Forge, Pennsylvania-based investment company, look for the advantage that a portfolio team can offer in order to decide whether to put them on its platform, Buckley said. The goal is to determine whether that edge is hard to duplicate when evaluating active managers for the platform.

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When it comes to active strategies, low management fees continue to be important, as they can prevent managers from taking unnecessary risks, Buckley says.

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When you are not getting paid to take risks, and spreads are tight like they are right now, don't take a lot of risks. It's not necessary for you to do that," Buckley said. This comment was made by the CEO of the company during a live taped episode of the podcast "Masters in Business".

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In April 2021, Vanguard launched an exchange-traded fund (ETF), called the Vanguard Ultra-Short Bond ETF (VUSB) which has already proved to be a successful active strategy for Vanguard clients.

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In the past 12 months, the fund has achieved a slightly positive total return and has a 0.10% expense ratio as well as a yield of 4.64%, which puts the fund over $3 billion in assets and delivers a slightly positive total return.