Vanguard has reopened Vanguard High-Yield Corporate Fund and Vanguard Intermediate-Term Tax-Exempt Fund to all investors, effective immediately.
The $16.1 billion High-Yield Corporate Fund, which is managed by Wellington Management Company LLP, was closed in May 2012. The $33.7 billion Intermediate-Term Tax-Exempt Fund, a municipal bond fund that is managed by Vanguard Fixed Income Group, was closed in February 2013. In both cases, Vanguard acted pre-emptively to address concerns that continued asset growth in the funds could harm the interests of current shareholders.
“These funds were closed to reduce cash flow, with the aim of preserving the advisors’ ability to implement their investment strategies and produce competitive long-term returns,” Vanguard CEO Bill McNabb said. “Cash flow to the funds has subsided which, along with a change in market conditions, has enabled us to reopen the funds.”
Capital Opportunity Fund Closed
Vanguard has closed Vanguard Capital Opportunity Fund to most new accounts, effective immediately. The fund is managed by PRIMECAP Management Company.
The $11.4 billion Capital Opportunity Fund was closed in 2004. It reopened to select investors in 2007, and to all retail investors in April 2013. Since its wider reopening this year, the fund’s assets have grown by more than $2 billion.
“While the size of the fund is currently manageable, continued strong cash inflows and growth resulting from market appreciation could pose challenges for PRIMECAP Management in the future. We feel closing the fund is the appropriate step at this time,” Mr. McNabb said.
Vanguard has a long history of closing funds and restricting cash inflows to maintain fund assets at reasonable levels. Currently, six Vanguard funds are closed to most new accounts in order to manage asset size: Admiral™ Treasury Money Market Fund, Federal Money Market Fund, Convertible Securities Fund, Capital Opportunity Fund, PRIMECAP Core Fund, and PRIMECAP Fund. An additional five funds are closed pending fund mergers.
Manager added to long-term bond fund
The board of trustees of Vanguard Long-Term Investment-Grade Fund has approved the addition of Vanguard Fixed Income Group to the fund’s advisory team. Wellington Management Company has managed the $13.4 billion fund since its inception in 1973 and will continue to serve as the lead advisor.
“After careful consideration, the fund’s board determined that our Fixed Income Group’s investment philosophy and capabilities will complement the fund’s existing advisor,” Mr. McNabb said. “It is also expected to benefit the fund’s investors by adding a high-quality manager to the fund’s overall portfolio and investment strategy without changing its fundamental character.”
Vanguard Fixed Income Group is one of the largest fixed income managers in the world, managing nearly $745 billion invested in 70 taxable and tax-exempt bond, taxable and tax-exempt money market, and stable value funds. The Group oversees about $420 billion in actively managed funds and about $325 billion in bond index and exchange-traded funds.
Wellington Management oversees about $400 billion in fixed income assets, including nearly $105 billion for Vanguard. In addition to the Long-Term Investment-Grade and High-Yield Corporate funds, Wellington provides investment advisory services to the $27.9 billion Vanguard GNMA Fund.
This marks the first time that Vanguard has employed the multi-advisor approach on a fixed income fund. Vanguard has long used multiple managers on its actively managed equity funds. Vanguard Windsor II became the first Vanguard fund to adopt this approach in 1987. Today, 17 of its actively managed U.S.-domiciled equity funds currently employ the approach. Vanguard believes that a fund with multiple managers can benefit from the diversity of thought and investment ideas.