Leadership is changing at Vanguard Group Inc., and if history's any guide investors should watch out.
Each time the $4.4 trillion money manager has named a new CEO, U.S. stocks have found themselves in the throes of temporary destruction. A few years after its legendary founder Jack Bogle stepped down, the technology bubble burst. Shortly after William McNabb won the role, the 2008 financial crisis unloaded on the market.
While both crashes were nothing more than unfortunate coincidences, the company is once again braced for change after announcing last week that Tim Buckley, the firm's chief investment officer, will succeed Mr. McNabb. The market doesn't look particularly bubbly at the moment, but there could be trouble ahead as long as U.S. stocks continue to trade at dangerously rich valuations, Mr. McNabb said.
"They're frothy,'' Mr. McNabb said. "There is a risk that those valuations take the multiples down a few points, and all of sudden you can have a pretty big move in the stock market.''
At Malvern, Pa.-based Vanguard, both Mr. McNabb and Mr. Buckley have been warning investors to proceed with caution. Along with a likely return of volatility, high valuations indicate low future returns, and investors need to adjust their expectations, Mr. McNabb said.
"That's never an easy thing for investors to navigate, lower returns and higher volatility,'' he said. "We haven't seen it yet, but when we do, it'll be troubling. But it's not the end of the world as we know it.''