As investment values slipped again Monday — with U.S. stocks down and bond yields also off on fears of a China trade war — Vanguard Group investors got an extra jolt when the Malvern-based company showed some of its popular funds falling much further.
Vanguard, which invests more than $5 trillion in clients’ money in mutual funds and exchange-traded funds, said the problem was speedily corrected. But wrong prices for popular Vanguard funds were also carried on the Associated Press data feed, where readers of The Inquirer and other news outlets were jolted anew when they checked prices Tuesday morning.
“Imagine my surprise upon seeing a listing in the paper for Vanguard Target 2025 of $14.91 — [the] price over the weekend was $19.00 — or a drop of 21.5%,” wrote reader David Webster. “Actual price change was -$0.91, or -0.47%,” he noted. He urged The Inquirer to consider adding “human oversight,” because it seems that automated price feeds can’t always be trusted.
“Some of Vanguard’s funds appeared to lose as much as half their value on Monday,” reported Barron’s, noting that Vanguard on its own website for a time reported that the Wellington stock-and-bond fund was down 32%, the Wellesley Income Fund down 56%, and the Target Retirement Fund down 46%.
“The issue was the result of delays experienced by the New York Stock Exchange, which impacted numerous pricing vendors that provide security pricing data for firms across the financial industry,” Vanguard spokeswoman Carolyn Wegemann said in an email.
She noted that the delays, widely reported, “impacted the initial Vanguard fund prices displayed on our website as well as other pricing sources. The Vanguard fund prices reflected on Vanguard.com between 6:10 p.m. and 8:45 p.m. EDT on August 12, 2019 were not the fund final prices, but rather incomplete preliminary prices. All Vanguard fund prices were corrected on Vanguard.com by 8:45 p.m. EDT that same evening, and the website accurately reflects the final Vanguard funds as of August 12, 2019. There was no material impact to the funds.”
The Nasdaq and New York Stock Exchange markets blamed the errors on delays in the Consolidated Tape Association system that shares data among stock traders, CNBC reported — and noted problems continued late in the trading day, even after the markets said prices had been corrected.
(Added Wednesday) Vanguard Flagship (million-dollar) investor Lou Franzini, of Exton, said he was disappointed to call Vanguard at 6 p.m. “and no one answered calls all evening. At 8:45 I called again and their phone systems were not properly working, you were not able to get automated account information.”
By early Tuesday morning, “the money in my account was correct for the Wellesley Income Fund, but the Vanguard Fund page on their website was still incorrect." By contrast his accounts at Vanguard rival T. Rowe Price were properly updated.
Franzini’s suggestion: “If fund balances are incorrect notify clients with a message on the website. I had to read Bogleheads.org,” the investors’ site, not Vanguard’s own postings, “to understand the problem... Vanguard could of and should have done a better job managing their clients fears and concerns. This is not the first time this has happened. As a former banker, I often question if Vanguard is too big.”
The glitch came a day after financial news outlets reported that Vanguard told shareholders that gun manufacturer stocks and other inappropriate investments had been included in Vanguard ESG (environmental, social, governance) funds that investors were promised wouldn’t buy them.
According to a Vanguard letter to shareholders posted by New York money manager Daniel Wiener, who founded the Independent Adviser for Vanguard Investors newsletter, the ESG stocks that had to be removed included not only arms makers, but also drugmaker GlaxoSmithKline, News Corp., oil exploration supply firm Halliburton, fast-food chain Yum! Brands, and other mainstream stocks.
Vanguard blamed the erroneous holdings on the Britain-based FTSE index that the ESG is modeled on. FTSE’s “screening methodology resulted in securities being erroneously included in the benchmarks of two Vanguard ESG funds.
FTSE resolved the issue and subsequently updated the benchmarks’ constituents on August 5,” and “Vanguard took action as promptly as practicable to sell the stocks and align the funds’ holdings with the corrected index data,” then notified shareholders, Wegemann said. She noted that the stocks were “a very small percentage” of the funds and “had no material impact” on performance.
So Tuesday’s pricing problem was the market-data collectors’ fault, and the wrongful-investment problem was the index-maker’s fault, until Vanguard noticed the obvious discrepancies and let readers know — hours and weeks later, respectively.
“Are they simply automating everything?” Wiener asked. Like reader Webster, he advised that humans more aggressively check the decisions that machines make.
(Added Wednesday) CPA and financial adviser Steve Piech took a different lesson from the snafu.. “This stuff happens,” he told me in an email. Channeling the late Vanguard founder and longterm investor John C. Bogle, Piech said that “retail investors should not be checking prices, and certainly not reacting to changes, on a daily basis.”