Vanguard’s New Bond King Writes Blog, Cracks Jokes
Vanguard’s Josh Barrickman is the new bond king. He writes a blog and cracks jokes like the rest of us.
Josh Barrickman works at Vanguard Group, where he and his team of 15 oversee bond portfolios for the Valley Forge-based investment giant.
Vanguard transformed retail investing via founder John Bogle’s idea of low-cost “indexing,” or putting money into a fund tied to the broader market’s performance.
And Barrickman, 39, runs the super-low-cost Vanguard Total Bond Market Index Fund, now the world’s largest bond index fund, with assets totaling $145 billion.
The Wall Street Journal recently crowned Barrickman the new bond king, noting that the Vanguard Total Bond Index Fund had surpassed in assets PIMCO’s flagship bond fund, once run by legendary bond manager Bill Gross.
Actually, the Vanguard Total Bond Index Fund surpassed PIMCO months ago, in large part because of Vanguard’s successful exchange-traded funds. Without ETFs, the Total Bond Index Fund holds about $117 billion, Barrickman said Tuesday.
“Our ETFs and index funds are really interchangeable,” he said. His team manages 30 bond index funds and 20 ETFs.
For retail investors, the fund’s extremely low cost is key.
According to the firm’s 2014 annual report, the Vanguard Total Bond Index mutual fund has an expense ratio of 0.20 percent – that is, the investor pays an annual fee equal to 0.20 percent of all the money he or she has in the fund. The ETF version costs just 0.07 percent, meaning the investor pays a fee equal to that percentage of his or her investment each year.
Returns have ranked in the middle of the pack. Ratings firm Lipper gives the fund only a 3 based on total return for the last five years. But the fund ranks as a Lipper Leader, with a 5 for its low expenses, meaning it ranked among the top 20 percent of the fund category for the last five years.
Barrickman, a native of Ashtabula, Ohio, graduated from Ohio Northern University, where he played college tennis, and then earned an M.B.A. at Lehigh University. In 1999, he joined Vanguard as a municipal bond trader, then worked as a bond index trader.
“I spent a lot of time with my grandfather as a youth, talking about stocks,” Barrickman says. “He followed the markets. He got me interested, and when the opportunity showed up at Vanguard, I was taken with it.”
As do many modern money managers, he sometimes writes a blog post.
“Whenever I explain indexing to friends and family, I always fall back on my favorite analogy: the car race. Imagine a race where one car represents the market and is set up in a certain way – with tires, fuel, suspension, and so on – all meeting precise specifications. The indexer is in another car, and its job is to finish in a dead heat with the market car,” he wrote in November.
In a December piece, “I Am Not Hal,” referring to the movie 2001: A Space Odyssey, he wrote, “If you’re picturing us letting computers do all the work, think again. While technology is an important tool, our bond index team is powered by the collective talent and experience of people doing business the old-fashioned, personal way – often by telephone.”
Barrickman wrote that he found it “a little strange that a recent headline asked whether the new ‘bond king’ is a machine.”
“While it’s true that I’m hard at work on my very own Iron Man suit, for the time being I’m, in fact, human. Occasionally, I even make jokes.”
The fund does things a bit differently from its competitors. For instance, Total Return Bond Index owns fewer mortgage bonds.
“We remove from our investment universe the holdings of the Federal Reserve of mortgages. We’re a little less exposed to mortgages. That’s a best practice, in our view,” he said.
Why? During the financial crisis, the Fed purchased mortgage bonds to prop up the prices artificially.
“When the Fed started buying mortgages, we felt that adjusting would be best practices. We did not want to target an artificial investment universe, as it can lead to distortions,” he said Tuesday.
As a result, Barclays put together a custom benchmark for Vanguard in 2010 known as the Barclays U.S. Aggregate Float Adjusted Index.
“Specifically, the Barclays Agg has approximately 28 percent in mortgages, and the float adjusted version that we follow has approximately 20 percent,” said Vanguard spokeswoman Emily White.
What does Barrickman think of central banks outside the United States that now are charging “negative” interest rates?
“We’re in uncharted territory if you look at central bank actions. There’s uncertainty out there about how it’s all going to play out. We could potentially see higher volatility as the market collectively figures out what the next moves are.”
That said, Barrickman noted he and his team “don’t build in a type of rate view into our portfolio. It’s not our mandate. Our mandate is to deliver the return of the benchmark.”