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Move Over Bond Kings, This Manager Runs More Fund Money Than You

  • Vanguard's Nassour oversees more assets in funds than stars
  • His six funds on average beat more than 90% of rivals

Gregory Nassour helps run almost $100 billion in U.S. bond mutual fund money -- more than star managers such as Dan Fuss of Loomis Sayles, DoubleLine Capital’s Jeffrey Gundlach or Daniel Ivascyn at Pimco. 

Never heard of him? That’s because he works at Vanguard Group, the firm known for popularizing index funds.

Nassour, who oversees more active bond assets than anyone at the firm, manages or co-manages six different funds. One of them, the $54 billion Vanguard Short-Term Investment Grade Fund, is the seventh-largest bond fund in the U.S., according to data compiled by Bloomberg. Another, the $25 billion Vanguard Intermediate-Term Investment Grade Fund, attracted more money in March, $1.65 billion, than any actively run U.S. mutual fund, data from Morningstar Inc. show.

While Nassour’s biggest funds have done well over the last three years -- on average beating more than 90 percent of rivals -- he’s not a household name. Vanguard has traditionally emphasized low expenses and collaboration over star managers, who can be expensive and whose departure can put entire firms at risk. The approach has served the world’s largest mutual fund company well, with clients adding a record $236 billion in new money last year.

“For people who want active bond funds with low costs, and managers who won’t do anything crazy, Vanguard is a perfect choice,” said Brian Moriarty, an analyst at Morningstar, a Chicago-based fund research company.

Team Effort

Vanguard’s active bond fund operation, which handles $278 billion, is very much a team effort. A group of six senior executives, collectively known as the hub, makes an economic forecast, and sets the general direction for how much risk the funds will take. Another group, which includes Nassour, turns those guidelines into investment portfolios.

His three main funds are divided by maturities -- short, intermediate, long -- and
invest predominately in corporate bonds. Most of the money in his $14.6 billion Vanguard Long-Term Investment-Grade Fund is managed by Boston-based Wellington Management.

The funds are conservatively run, holding a maximum of 5 percent of their assets in high-yield bonds. Currently they have about 1 percent in junk-rated securities.

“In rallies where low-quality bonds do best, we will trail,” Nassour said in an interview. “We won’t go down to the junkiest of credits.”

No Limelight

Nassour, 46, is a Vanguard lifer. He joined the company out of college in 1992, and worked his way up to portfolio manager in 2008. Like others at Vanguard, he credits his funds’ success to the firm’s corporate culture and a team approach. He referred to his colleagues as crew members, a word popularized by Vanguard founder John Bogle who has a love of things nautical.

“I don’t need to be in the limelight,” Nassour said. “I am fine letting the performance speak for itself.”

In 2015, Nassour’s two biggest funds, the short and intermediate products, beat 94 and 97 percent of peers, respectively, by avoiding missteps that hurt other funds. Corporate bonds lost 0.6 percent last year, according to the Bank of America Merrill Lynch US Corporate Index.

The funds held fewer industrial bonds and less energy and metals debt than its benchmark index, said Nassour. It bet more heavily on bonds of financial companies and debt outside the corporate realm, including asset-backed securities, which held up better. 

Industrial Bonds

Coming into this year, he worried that the slide in commodity prices could cause widespread problems across the corporate debt world. When bonds of metal giant Freeport-McMoRan Inc. rallied after the company’s credit rating was downgraded in late January, he decided it was time to switch gears and add industrial names to the portfolio in time to catch the rally.

“When we saw that the market absorbed the downgrade well, we reduced our underweight,” said Nassour. Industrial bonds climbed 6 percent since Feb. 1, Bank of America Merrill Lynch data show.

Currently, Nassour considers the corporate bond market fairly valued with some pockets of opportunity. Mark Kiesel, a corporate bond specialist at Pacific Investment Management Co., is more bullish. Last week in an interview on Bloomberg Television, Kiesel called U.S. corporate bonds the most attractive in the world and said they could deliver “equity-like returns with one-third of the volatility.”

Low Costs

Nassour’s intermediate fund beat Kiesel’s $7.6 billion Pimco Investment Grade Corporate Bond Fund over the past three years, according to data compiled by Bloomberg. Over five years, Kiesel outperformed, after fees. The Vanguard fund charges 10 cents for every $100 invested; Pimco charges 50 cents.

“If you think low costs are good in the stock market, they really pay off in bonds, where the returns are smaller,” said Daniel Wiener, editor of the Independent Adviser for Vanguard Investors, a newsletter.

The quest for cheap bond funds has also spurred a rush into bond index funds, which accounted for a record 27 percent of the money in taxable-bond mutual funds and ETFs in March, Morningstar data show.

Vanguard has about $440 billion in passively managed bond products. In March, the company collected more money in its mutual funds and exchange-traded funds than all of its competitors combined.

When he isn’t at work, Nassour is likely to be traveling with his sons’ sports teams -- one plays soccer year-round, the other ice hockey. At home as at work, he tracks everything on spreadsheets, from the family budget, to his lawn care schedule to his son’s hockey statistics. “It’s a little crazy,” he conceded.

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