Vanguard Buys Custom Portfolio Maker in Move Beyond Indexing

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Vanguard Group agreed to buy a company that helps financial advisers build custom portfolios, branching further beyond its roots in traditional index-based investing -- and marking its first-ever acquisition.

The firm, called Just Invest, oversees about $1 billion in assets managed with a “direct indexing” strategy, Vanguard said in a statement Tuesday. Direct indexing involves tailoring investments for a variety of customer preferences such as minimizing taxes. The approach is more customized than passively tracking the returns of an index, something that Vanguard has championed in its more than four-decade history. Terms of the deal weren’t disclosed.

Asset managers have been snapping up companies that specialize in direct indexing. BlackRock Inc., the world’s largest asset manager, completed its acquisition of Aperio in February. Morgan Stanley also bought Eaton Vance for more than $7 billion, which included its custom portfolio business Parametric.

Just Invest, founded in 2016, will add to Vanguard’s financial advisor business, an area that’s been a focus for Chief Executive Officer Tim Buckley. Vanguard will broaden out its use of Just Invest strategies to more clients over time, according to the statement.

Started in 1975, Vanguard has become a fund giant by focusing on lowering the cost of investing. The firm, which had about $7.9 trillion in assets at the end of May, has achieved that with funds such as the Vanguard S&P 500 ETF, which gives investors access to the returns of companies in the index for a fee of just 3 cents per $100 invested.

Across the industry, fees for index funds are grinding lower with greater competition, and large asset managers are increasingly targeting higher-fee areas to generate revenue, like sustainability and alternatives. Even Vanguard is eking out a niche in alternatives with a private equity offering, announced in 2020, that opened to individual investors this year.

©2021 Bloomberg L.P.

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