Morningstar - Q3 2021 - 60

Strategies
Allocation TRSGX stands out with an Analyst
Rating of Silver.
Single-Asset-Class Options
For investors who prefer to build their own
portfolios, Schwab Charitable offers a variety of
both active and passive vehicles covering
domestic stocks, international stocks, bonds, and
cash. It also includes an inflation-protected
bond offering-a useful asset type missing from
Fidelity and Vanguard's options for singleasset
funds. The single-asset-class menu is
relatively strong overall and includes standouts
such as Metropolitan West Total Return Bond
MWTIX, one of the best offerings in the
intermediate core-plus bond category, and
Schwab Total Stock Market Index SWTSX,
which offers broad equity market exposure at a
rock-bottom expense ratio. The lineup also
includes ESG-focused offerings.
Other Investment Options
Like Fidelity, Schwab Charitable allows donors with
balances of $250,000 to recommend a qualified
investment advisor to manage their investment
accounts. The investment advisor can build
customized portfolios using mutual funds, ETFs,
stocks, bonds, and CDs, as well as approved
investments in hedge funds, venture capital, and
private equity.
Overall, Schwab Charitable offers a decent
lineup of investment options and is broadly
accessible to a wide range of charitable
donors. While its asset-allocation pools could be
stronger, the single-fund pools are more
compelling, especially given the prevalence of
good, low-cost index options. In addition, investors
who already hold assets at Schwab will
likely find it easier to set up a donor-advised fund
under the same umbrella instead of moving
assets to another organization.
Vanguard Charitable Endowment Program
With $10.8 billion in assets as of June 30, 2020,
Vanguard Charitable Endowment Program
ranks as the third-largest donor-advised fund
affiliated with an asset-management firm.
For investors who plan to maintain larger account
balances, though, it's arguably the best
option. It offers the lowest administrative costs for
60
Morningstar Q3 2021
higher account balances as well as a rock-solid
investment lineup.
Vanguard's donor-advised fund caters to a more
elite group of charitable donors than its
peers. While Fidelity Investments Charitable Gift
Fund and Schwab Charitable Fund don't
require a minimum dollar amount to set up a new
account or make additional contributions,
Vanguard requires a $25,000 minimum for new
accounts and $5,000 for additional investments.
Donors are also required to maintain a $25,000
account balance; accounts open for more
than six months that drop below that value are
subject to a $250 account maintenance fee.
Vanguard Charitable officials believe these higher
minimums lead to more committed donors
who can make a greater charitable impact with
their donations over time.
Like nearly all donor-advised funds, Vanguard's
donor-advised fund also comes with an
additional layer of administrative costs. For lower
balances, Vanguard's fee structure is identical
to those of Schwab and Fidelity. The fund
charges a 0.6% annual administrative fee (or a flat
fee of $100, whichever is greater) for accounts
with balances up to $500,000, and 0.3% for the
next $500,000 in assets.
These charges are in addition to the fees on the
underlying investments. All of these fees come out
of the amount donated.
That said, Vanguard Charitable's fee structure
steps down at a pretty generous rate, making
it a more compelling option for donors who plan to
maintain account balances of $1 million or
more. Tiered fees on account balances between
$1 million and $15 million are 13 basis points,
which drops down to 10 basis points for the next
$15 million in assets and 5 basis points for
assets between $30 million and $100 million.
Vanguard Charitable offers two main investment
types: diversified asset-allocation pools with a
range of risk levels (which it calls Portfolio
Solutions) and single-asset-class pools for a variety
of asset classes (which it calls Portfolio Building
Blocks). In contrast to Fidelity and Schwab,
Vanguard's lineup consists almost exclusively of
in-house funds, although the quality of the
menu is tough to quibble with.
Asset-Allocation Pools
The asset-allocation pools offer a diversified
mix of equities and fixed-income securities, with
risk levels ranging from conservative to more
aggressive. Each of the four pools invests in
three underlying funds to meet a target equity
allocation of 20%, 40%, 60%, or 80%. Three
of the four are ultrasimple combinations of index
funds focusing on U.S. stocks, international
stocks, and bonds. The Moderate Growth Portfolio
Solution is the only one that dips its toe
into actively managed funds, combining equal
weightings in stalwart Vanguard Wellington
VWELX with a plain-vanilla balanced index plus
a smaller stake in international stocks.
Single-Fund Options
For investors who prefer to build their own
portfolios, Vanguard Charitable offers a variety of
mostly passive vehicles covering domestic
stocks, international stocks, bonds, and cash. It's
a comprehensive list that includes most major
asset classes investors could possibly need, with
the potential exception of an inflation-protected
bond offering, which could fill a useful role.
The lineup also includes ESG-focused offerings for
both domestic and international stocks.
Other Investment Options
Finally, donors with higher account balances
(ongoing account balances of $100,000
or more) can invest in TIFF Multi-Asset Fund,
an actively managed fund managed by The
Investment Fund for Foundations. The fund aims
to generate annual returns of at least 5
percentage points above inflation. The fund is
for donors who are pursuing long-term
giving strategies, similar to endowments
and foundations.
For charitable donors who can pony up
the $25,000 minimum, Vanguard Charitable
Endowment offers a compelling lineup of
top-quality investment offerings, as well as lower
administrative costs than most competing
donor-advised funds. K
Amy C. Arnott, CFA, is a portfolio strategist with Morningstar.
Morningstar - Q3 2021

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