Equities ‘Frothy,’ Markets Volatile: Vanguard Execs

More than half of Vanguard investors are looking to boost their equity holdings in 2014, according to a poll taken during a webinar led by the investing giant’s top executives late Thursday.

But the executives — Chairman, CEO and President Bill McNabb and Chief Investment Officer Tim Buckley — urged the 8,600 attendees to proceed carefully.

The poll found that 33% of investors were somewhat likely to increase their equity exposure this year, while 24% were very likely to do so.

“Often, after great returns … people chase them and risk getting in after a run-up. So, don’t overallocate to equities,” Buckley cautioned.

Valuations, he notes, are historically in the top quartile and “are getting pricey.”

In terms of what changes in Fed policy and quantitative easing could mean, McNabb says we are in “unprecedented territory.”

“When something slightly unexpected happens, a lot of volatility enters the market, and there are likely to be disruptions as the end [of QE] works out,” McNabb said. “There are likely to be surprises.”

Vanguard’s financial models project that over the next 10 years, average returns could be in the range of 6%-7%.

Overall, there are positive signs that the United States can move beyond its current 2% economic growth rate, Buckley noted.  

2014 Outlook

Vanguard’s economic and investment outlook, released earlier this week, says the firm’s experts “anticipate that the modest global recovery will likely endure at a below-average pace through a period of low interest rates, continuing high unemployment and debt levels.”

However, the U.S. may be moving toward better-than-trend growth for the first time since the onset of the global financial crisis, it says. “Our economic outlook, in short, is one of resiliency,” the group said in its report.