Vanguard Australian Listed Property

Vanguard  

Investment Style: Passive

Vanguard Investments Australia Limited (Vanguard) is a wholly-owned subsidiary of The Vanguard Group, Inc., based in Valley Forge, Pennsylvania. The Vanguard Group, Inc. has a history of specialisation in public offer index management dating back to 1976. Vanguard Australia was incorporated in February 1996 to offer index management services to Australian investors, with investment management (excluding regional trading desks), operations, and client servicing located in Melbourne.

Vanguard's philosophy is that any market is a zero-sum game in relative performance terms on a before-cost basis. The firm believes that a properly managed index portfolio will outperform most active managers in the long term. Vanguard seeks to provide the most cost-effective implementation of an indexed portfolio, tailored to each client's circumstances. The objective is to match the return on the benchmark closely before fees with low transaction costs.

Vanguard uses two approaches to index management depending on the size of portfolios and the liquidity of the stocks within the benchmark: optimised replication or optimisation. For broader indices (such as for international shares), the firm recommends optimisation rather than optimised replication regardless of portfolio size, believing that the transaction and custodial costs introduced by investing in the smallest-cap stocks generally outweigh any reduction in tracking error.

The investment process begins with the collection of index data from various sources. Vanguard then applies a liquidity screen to eliminate illiquid stocks. BARRA is then run to construct an optimised portfolio. The objective function of the optimisation process is to minimise forecast tracking error by manipulating stock weights. Rebalancing trades are generally only conducted when the portfolio's forecast tracking error begins to approach its mandated constraint. The domestic property securities product also uses a proprietary cash flow allocation model.

Vanguard Australia’s investment team is led by Joseph Brennan as Chief Investment Officer. The team operates in four divisions: Equities, Fixed Interest, Investment Solutions & Research, and Investment Risk. International and Australian shares and property securities are managed by the Equities Team led by Alla Kolganova.