Page 40 - Investment Advisor March 2022

ETF ADVISOR

“VIX funds are not investment long- term and appreciate in value, they will advisors are generally not interested in.
term instruments,” said Michael Iachini, be subject to short-term capital gains He recommends that instead of VIX
head of manager research at Charles tax, which is equivalent to an investor’s ETPs, advisors protect client assets the
Schwab Investment Advisory. “Most income tax rate. Fees for VIX ETPs are tried-and-true way – with asset alloca-
investors need to really understand also high, topping 90 basis points. tion, maybe some cash. VIX ETFs are
what the futures curve is … not a “magic bullet to erase
before they consider investing Instead of protecting investor market risk.”
in a VIX-related fund.” assets against losses, VIX-linked In late January, the VIX
Also complicating these retreated after several consec-
investments is their structure. ETPs have, overall, added losses utive days of increases, which
VIX funds — and there are far presents another short-term
more than the ones mentioned to investor portfolios. A primary investment opportunity for
here — include ETFs like the reason is that these investments some investors: shorting the
ProShares vehicles that many index, which can be done with
investors are familiar with. don’t invest in the actual VIX inverse VIX ETPs.
Others are ETNs, which index but in a futures contract According to Bloomberg
tend to be less well-known. there have been only 10 times
They are essentially debt based on that index. in the past two decades that
instruments from a bank and the VIX has fallen for seven
therefore can involve credit risk (of the These ETPs are “too expensive to trading days in a row. After nine of
bank). These different structures are use due to [potential] long-run erosion those times, investors who shorted the
also subject to different tax treatments. of value,” said Iachini, adding that they VIX earned nearly 19% after 20 days,
Moreover, if they’re held for the short are speculative products, which most Bloomberg reported.

Vanguard to Launch Its First Impact Mutual Fund

anguard is planning to launch expand our ESG lineup, introducing Gifford uses a bottom-up approach to
its first impact mutual fund funds and ETFs with enduring invest- identify between 25 and 50 growth
Vdesigned to generate positive ment merit that reflect clients’ needs and companies with the potential to out-
returns while having a positive social preferences,” said Vanguard Chairman perform the MSCI All Country World
and/or environmental impact. The $8.5 and CEO Tim Buckley, in a statement. Index and the ambition to deliver posi-
trillion fund giant has filed an initial reg- “The new Global Positive Impact Stock tive change in education, health care,
istration statement with the SEC for the Fund will tap Baillie Gifford’s signifi- quality of life, the environment and
Vanguard Baillie Gifford Global Positive cant expertise in fundamental equity in addressing the needs of the world’s
Impact Stock Fund, an active equity research and impact analysis, helping poorest populations.
fund whose concentrated portfolio will our clients to achieve both their impact It is expected to have an expensive
be managed by Baillie Gifford, one of and investment goals.” ratio of 0.59%, six basis points below
several current Vanguard subadvisors. The new fund will be Vanguard’s sec- the Baillie Gifford Positive Change
The group also manages the Baillie ond active ESG-focused fund and the Equity Fund, which is rated five stars
Gifford Positive Change Equities sixth in its ESG lineup, whose assets, as by Morningstar.
Fund, which will be converted into of year-end 2021, totaled $27.5 billion. “We hope this fund adoption will
the Vanguard Baillie Gifford fund once The Vanguard Baillie Gifford Global broaden access to impact invest-
its shareholders approve the tax-free Positive Impact Stock Fund will main- ing at a very competitive cost,” said
reorganization through a proxy vote. tain the investment objectives and port- Andrew Telfer, Joint senior partner at
Vanguard expects the new impact fund folio management team of the existing Baillie Gifford.
will be available for public investment in Baillie Gifford fund, partner Kate Fox
the third quarter of this year. and portfolio manager Lee Qian. Nicolas Morgan is a partner at the global
“We’ll continue to thoughtfully According to the SEC filing, Baillie defense firm Paul Hastings.

38 INVESTMENT ADVISOR MARCH 2022 | ThinkAdvisor.com