Vanguard gives US parent a run for its money

US-based funds management giant Vanguard is beginning to see the kind of success in Australia that pushed the group to its solid number two position in the US mutual funds market.

Vanguard Investments had $4.2 billion of funds under management at the end of last year, with $600 million in six asset sector funds and four balanced pooled superannuation trusts.

The balance of the funds under management is held in separate accounts for clients, says Vanguard managing director Jeremy Duffield.

"Vanguard's Australian growth is in line with its US parent whose assets grew more than 30 per cent to reach in excess of $A700 billion last year," he says.

The retail funds, launched by Vanguard Australia last October, have already attracted more than $15 million, Duffield says.

Performance figures released for the Vanguard funds show the Australian Shares Index Fund gave a return of 11.76 per cent for the 1998 year, which was 0.13 per cent ahead of the benchmark.

The top performer in the Vanguard index funds was its International Shares Index which gave a full year return of 32.15 per cent. This was tempered, however, with the emerging Markets Fund which gave a negative 11.87 per cent return for the year.

The weakness for this fund was Malaysia and the fall in the value of its currency.

The Vanguard fund holds the ringgit at full value and the potential discount is reflected in the withdrawal price. The MSCI Index is discounting the ringgit at 30 per cent and this is affecting the performance of Vanguard's fund.

Duffield says the volatility of 1998 is probably due to carry over into this year and will play a significant role in determining this year's returns.

"We can expect more gyrations in the year ahead," he says. "We repeat our long-standing advice that investors should stick with their asset allocation in a way that meets their long-term needs."