Vanguard to meld two money market mutual funds

Another is to be closed to new investors

Jun 3, 2009 @ 2:34 pm

By Sue Asci

The Vanguard Group Inc. has announced plans to merge two of its money market mutual funds and close a third fund to new investors.

The Malvern, Pa.-based fund firm will merge the $6.7 billion Vanguard Treasury Money Market Fund (VMPXX) into the lower-cost $21.8 billion Vanguard Admiral Treasury Money Market Fund (VUSXX).

The Treasury Money Market Fund has an expense ratio of 0.28%m and the Admiral Treasury Money Market Fund has an expense ratio of 0.15%.

The firm will also close the $12 billion Vanguard Federal Money Market Fund (VMFXX) to new accounts and to additional purchases from current institutional accounts, and there will be a $10,000 daily investment limit for current retail accounts.

“We've taken these actions in response to declining yields on short-term government-backed securities,” said Vanguard spokeswoman Rebecca Cohen.

“A flight to quality in the bond market has pushed Treasury and agency bond yields to historic lows, and money market funds' yields have fallen in turn.”

When new cash comes in, managers have to buy securities at current yields, which are low. As a result, new-cash flow would dilute the existing yield of the funds, Ms. Cohen said.

In addition, with the fund merger would mean lower cost for shareholders, she said. “Fund expenses are deducted from the fund’s yield,” Ms. Cohen said.

“The lower the cost for the fund, the higher the yield.”

The merger also means that the Treasury Money Market Fund, which previously had a minimum investment of $3,000, will be merged into a fund with a $50,000 minimum.

Both funds were closed to new investors in February.

“If the fund reopens, we would expect that the board would set an appropriate minimum investment at that time that would be lower than $50,000,” Ms. Cohen said.

The fund merger is planned for early August.

No plans have been made to reopen the funds to new investors.

“The board will watch the markets to see if yields recover from their current historic lows, and make a decision at that time,” Ms. Cohen said.

Vanguard had $1.1 trillion in assets under management as of March 31.

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