Morningstar Magazine - December 2017/January 2018 - 80

Ten Questions

Vanguard's Duncan Burns frames
the issues.
Glenn Freeman, an editor with Morningstar
Australia, interviewed Burns in August.
1. What is driving the growth of index investing?

The global financial crisis was a watershed
moment. Since then, more investors have been
drawn to the idea that a broadly diversified
index fund is a greater value proposition than what
many traditional high-cost active managers have
put forward.
2. How important are fees in the active vs.

passive debate?

Costs matter whether we're talking about
index or active. With active, cost can be
the difference between outperformance and
underperformance of the market.
3. How do actively managed products fit Vanguard's

core philosophy of indexing?

Duncan Burns, head of Vanguard's Equity
Index Group for Asia-Pacific, oversees
Vanguard's Australian and global equity index
portfolios and the firm's trading operation
in the Asia-Pacific region. Before joining
Vanguard in 2013, he worked for seven years
at Jacobs Levy Equity Management, a
U.S. provider of quantitative equity strategies
for institutional clients. Burns started
his career on Wall Street in 1996. He has a BA
in economics from Lafayette College and
an MBA from the Yale School of Management.

Our core philosophy is "low cost" rather than just
"indexing." In Australia, the average actively
managed fund's management expense ratio is 123
basis points, and our initial lineup of three
quantitative active funds here have expense ratios
of only 35 basis points each.
4. What sector are you most bullish on right now?

As always, our message is to stay broadly
diversified. When it comes to the Australian stock
market, that's particularly important, given its
heavy weighting toward financials, and to a lesser
extent, resources. Investors should tap into
sectors that have a much smaller representation
by market cap, like technology or healthcare.
5. Which area do you view with the greatest caution?

Property, which stretches into materials companies
directly involved in housing construction and
the large banks that dominate Australia's
mortgage market. As local interest rates look ready
to tick back up, this is a critical time.

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Morningstar December/January 2018

6. What's the biggest misconception about
Australia's economy?

A common misperception is that the Australian
economy is well-diversified, in the same way
many developed economies are. However, it is very
dependent upon mining and housing.
7. How has your investment approach evolved?

I've been a fan of indexing since I landed on
Wall Street in 1996 and opened a personal account
at Vanguard the same year. There are active
managers out there that can beat the market, but
honestly, I'm not one of them.
8. Where would you be working now if not within
financial services?

Back in 1993, I was studying engineering
at Lafayette College when I took a few electives
and stumbled into economics. If it was
not for Prof. Gladstone "Fluney" Hutchinson
steering a gangly younger version of
myself toward economics, I'd probably be behind
a desk designing something in AutoCAD.
9. When traveling offshore, what do you miss the most

about Australia?

Training on my bicycle. The weather and roads
here in Melbourne are fantastic, so I've
taken up cycling in the last few years. My next big
race is 210km around Port Phillip Bay.
10. What are you reading now?

I'm rereading one of my favorite books, Mindset,
by Carol Dweck. It highlights how a love
of learning, a desire to take on challenges, and
resilience are the basis for most great
accomplishments for both young and old-
it's not all about raw IQ.
Table of Contents for the Digital Edition of Morningstar Magazine - December 2017/January 2018
