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Bringing you news, views and analysis since 2013

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Vanguard reopens two bond funds

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Vanguard has reopened the Vanguard High-Yield Corporate Fund and Vanguard Intermediate-Term Tax-Exempt Fund to all investors, effective immediately.

The USD16.1bn High-Yield Corporate Fund, which is managed by Wellington Management Company, was closed in May 2012.
 
The USD33.7bn 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,” says Vanguard chief executive Bill McNabb (pictured). “Cash flow to the funds has subsided which, along with a change in market conditions, has enabled us to reopen the funds.”
 
Vanguard has closed Vanguard Capital Opportunity Fund to most new accounts, effective immediately. The fund is managed by PRIMECAP Management Company.
 
The USD11.4bn 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 USD2bn.
 
“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,” McNabb says.
 
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.
 
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 USD13.4bn fund since its inception in 1973 and will continue to serve as the lead advisor. 

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