Vanguard Data Shows Investment Trends by Advisors

Data from Vanguard shows that advisors have increased allocations to passive, low-cost investment products. But they also increased allocations to commodities and timed markets poorly, particularly after the March 2020 crash.

Last month, Ryan Barksdale gave a fascinating presentation at the AP Thought Leader Summit. He is the head of portfolio analytics and consulting at Vanguard. The presentation, “Portfolio Insights: Effective investment strategies in the current market,” provided those and other riveting insights. A few of these trends were very encouraging, while others were downright frightening. I interviewed Ryan about his presentation.

Ryan aggregated approximately 15,000 portfolios using a Vanguard diagnostic tool and analyzed data on services Vanguard provides to advisors. He told me the purpose of sharing this data was to help advisors have a more objective view of portfolio construction trends and compare their strategies to other advisors to inform portfolio decisions.

My first question to Ryan was how representative of advisors overall was the data presented? I suspect advisors using Vanguard funds are more concerned with costs and more likely to use market-cap-weighted funds. Advisors using smart-beta strategies or high-cost products would be less likely to use Vanguard services. Ryan said he, “agreed that this data includes advisors using Vanguard’s portfolio construction tools and consulting services (not necessarily Vanguard investment products) and more cost conscious and more benchmark-oriented (i.e., less dramatic factor / sector exposures).”

First, the wonderful trends:

Embracing “dumb beta”

A decade ago, “smart beta” was the craze and it was viewed by many advisors as a free lunch. Some told me it was behavioral in that investors chased growing companies and shunned value-oriented stocks. Soon over 500 smart-beta factor strategies were discovered that “worked” in the past.

However, I embraced market-cap weighting and named it “dumb beta.”

I was pleasantly surprised to see that advisors were very close to market-cap weighting in value, growth and size. I would have loved to see the allocation of those same advisors a decade ago before small-cap, value and other factor investing badly underperformed.