A financial meltdown that started in Turkey last month left few emerging-market money managers unscathed, with local-currency bond funds falling an average of 5 percent. That’s a significant loss for funds from Vanguard Asset Management Ltd., BlackRock Inc., and PineBridge Investments. The losses highlight how the rout that began in Turkey has spread globally, hurting fixed-income performance.
It has also prompted investors to seek safety in U.S. stocks, boosting demand for low-cost stock index funds such as those run by Vanguard and BlackRock. The world’s two biggest fund companies manage nearly $10 trillion in assets, including about $2.1 trillion in fixed income.
The funds are seeking to wrest business from Newport Beach, California-based Pimco, the bond king that lost its crown in recent years after infighting and managerial mishaps prompted its founder, Bill Gross, to quit and his presumed heir apparent, Mohamed El-Erian, to flee. The Newport Beach firm hemorrhaged assets as its consistently underperforming flagship fund shed more than $65 billion in the 12 months before Gross’ departure.
In the wake of Gross’s exit, Vanguard has quietly positioned itself to usurp PIMCO as bond vulture-in-chief. The Malvern, Pennsylvania-based giant has several proprietary funds, including 418 active bond funds with nearly $945 billion in managed assets. It is the second-largest active bond manager, trailing BlackRock by a hair.
It also reduces fees across its bond offerings, including the recently created Core Bond Fund and a new multi-sector fund led by veteran portfolio managers Brian Quigley, Daniel Shaykevich, and Arvind Narayanan. The move is part of a broader push by the fund industry to lower management fees as competition in fixed-income markets intensifies. The move could be accelerated by the impending launch of a FINRA-built global bond-trade reporting system called CAT NMS, requiring firms to record all trades in a central database.
