The Vanguard Group Inc. and The
Principal Financial Group have dropped Axa Rosenberg Investment Management LLC as the subadviser of a number of their funds. The move comes four months after Axa Rosenberg disclosed that it had discovered a coding error in its computer-driven investment models.
On April 15, the quantitative equity manager notified clients that the firm had discovered the error in June 2009 — and had fixed the glitch in the fall of that year. Co-founder Barr Rosenberg took a leave of absence from the firm in May and resigned from the board in June. At that time, he and co-founder Kenneth Reid sold their 25% stake in the firm.
In May,
Charles Schwab Investment Management Inc. filed with the Securities and Exchange Commission to liquidate its four funds that Axa Rosenberg subadvised: the Laudus Rosenberg U.S. Large Capitalization Fund Ticker:(AXLIX), the Laudus Rosenberg U.S. Discovery Fund Ticker:(RDISX), the Laudus Rosenberg International Small Capitalization Fund Ticker:(ICSIX) and the Laudus Rosenberg International Discovery Fund Ticker:(LIDSX).
On Tuesday, Principal filed with the SEC to drop Axa Rosenberg as the subadviser of its $1 billion International Value I Ticker:(PINZX), replacing the firm with Barrow Hanley Mewhinney & Strauss LLC. “We decided to drop AXA Rosenberg due to a combination of qualitative events that have taken place over the past few months,' Randy Welch, director of investment services at Principal, said.
Vanguard decided to drop Axa Rosenberg as the manager of its $8.9 billion Explorer Fund Ticker:(VEXPX), the $492 million U.S. Value Fund Ticker:(VUVLX) and the $84 million Market Neutral Fund Ticker:( VMNFX). The decision came after months of due diligence, said Chris McIsaac, principal, head of Vanguard's portfolio review department. “We are never quick to rush to judgment,” he said.
Through its review, Vanguard determined that the coding mistake at Axa Rosenberg didn't affect the Market Neutral Fund but did affect the other two funds. “We believe it has affected the other two funds, but we don't know to what degree,” Mr. McIsaac said. “Axa Rosenberg hasn't yet communicated the impact, if any, to the portfolios that have been affected.”
In an Aug. 4 letter to clients, Axa Rosenberg said that it was still conducting its “impact analysis” and expected to communicate the results by early September.
“Axa Rosenberg remains committed to our clients in the U.S. and around the world,” John Christiansen, a spokesman for Axa, noted in an e-mailed statement. “And we believe the changes we have recently made to our ownership, management and organizational structures will serve them well”
Vanguard's quantitative equity group is taking over the management of the U.S. Value Fund and the Market Neutral Fund. The company is divvying up the allocation of the Explorer Fund among the fund's six other managers, which include Vanguard's quantitative equity group.
As part of that reallocation, the Explorer Fund will have less exposure to quantitative equity investing, but solely because the other five managers are not quant managers, Mr. McIsaac noted.
He added that the rejiggering is not a reaction to the poor performance of quant funds over the past three years. “We haven't made a decision on quantitative investing one way or the other,” Mr. McIsaac said.
